Government Eases SEZ Regulations to Boost Semiconductor Manufacturing in India
The Indian government has taken a significant step towards strengthening the country's semiconductor manufacturing capabilities by announcing major relaxations to Special Economic Zone (SEZ) regulations. These changes, notified on June 3, 2025, are designed to attract substantial investments and establish India as a key player in the global semiconductor supply chain.
Key Changes to SEZ Rules for Semiconductor Sector
The Ministry of Commerce and Industry has implemented three crucial amendments to make SEZ establishment more attractive for semiconductor and electronics component manufacturers:
Reduced Land Requirements
The most significant change involves a dramatic reduction in minimum land area requirements. Under the amended Rule 5 of the SEZ Rules 2006, semiconductor and electronics component manufacturing units now need only 10 hectares of contiguous land, down from the previous requirement of 50 hectares. This 80% reduction makes it considerably easier for companies to establish manufacturing facilities.
Domestic Market Access
A groundbreaking amendment to Rule 18 now allows SEZ units in semiconductor and electronics sectors to supply products domestically within India after paying applicable duties. This represents a major shift from the traditional export-only model of SEZs, providing manufacturers with access to India's rapidly growing domestic market.
Flexible Land Ownership Requirements
The modification to Rule 7 provides the Board of Approval with authority to relax encumbrance-free land conditions in cases where land is mortgaged or leased to Central or State Government agencies. This flexibility addresses practical challenges in land acquisition for large-scale manufacturing projects.
Major Investment Approvals Following Rule Changes
The immediate impact of these regulatory changes is evident from two significant approvals granted by the Board of Approval for SEZs, representing a combined investment of ₹13,100 crore:
Micron's Gujarat Facility
Global memory manufacturer Micron Semiconductor Technology India has received approval to establish a cutting-edge SEZ facility in Sanand, Gujarat. This project involves an estimated investment of ₹13,000 crore and represents one of the largest semiconductor manufacturing investments in India.
Aequs Group's Karnataka Project
Hubballi Durable Goods Cluster Private Ltd, part of the Aequs Group, has been approved to set up an SEZ in Dharwad, Karnataka, focusing on electronic components manufacturing. This facility will be established with an investment of ₹100 crore.
Strategic Importance for India's Semiconductor Ecosystem
These regulatory reforms address the unique challenges of semiconductor manufacturing, which is characterized by high capital intensity, import dependency, and extended gestation periods before achieving profitability. The government recognizes that traditional SEZ regulations were not optimally designed for this high-technology sector.
The amendments are expected to create a cascading effect on India's semiconductor ecosystem by:
- Attracting more global semiconductor companies to establish manufacturing bases in India
- Creating high-skilled employment opportunities in cutting-edge technology sectors
- Reducing India's dependence on semiconductor imports
- Strengthening the country's position in global electronics supply chains
Future Implications for Manufacturing Sector
The Ministry of Commerce and Industry emphasizes that these changes will boost high-tech manufacturing across the country and spur growth of the semiconductor manufacturing ecosystem. With the global semiconductor market experiencing unprecedented demand, these regulatory improvements position India to capture a larger share of this lucrative sector.
The timing of these reforms aligns with global trends toward supply chain diversification and the increasing recognition of semiconductors as critical strategic resources. By creating a more favorable regulatory environment, India aims to attract the substantial investments needed to build world-class semiconductor manufacturing capabilities.
These policy changes represent a pragmatic approach to industrial development, acknowledging the unique requirements of high-technology manufacturing while maintaining the benefits of the SEZ framework for export promotion and economic growth.
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