DESH: The Much-Awaited Solution For Making India A Manufacturing, Services Hub

The introduction of the Development of Enterprises and Service Hubs (DESH) Act to replace and broaden the scope of the Special Economic Zones (SEZ) Act, 2005 has been widely hailed in view of India’s thrust to promote domestic manufacturing and services. Seen as a welcome move. , There has been a lot of anticipation around this proposal since Finance Minister Nirmala Sitharaman intended the government to bring about this change while presenting the Union Budget for 2022. DESH is set to bring together the efforts of the State and Central Government to provide a comprehensive and single-window Clearance mechanism for industrial parks, estates and hubs for all types of manufacturing and services.

Needless to say that in SEZ India With the total value of exports expected to exceed $100 billion in FY 2019-20, India will continue to play a significant role in improving its export capabilities. There is a growing push from the government to create large manufacturing and service areas/hubs through its strategic initiatives, such as its flagship Sagarmala programme, which will create large coastal economic zones with state-of-the-art infrastructure and port connectivity facilities. While protecting what has been achieved by the SEZ Act, these initiatives will provide a new approach to broaden the scope and coverage of such areas in growth centres. That’s where DESH steps in.

DESH is seen as a culmination of the efforts of the expert committee constituted in 2018 under the chairmanship of Baba Kalyani, chairman and managing director of Bharat Forge, which in its report had recommended far-reaching changes. This report has been followed up with extensive public consultation on each aspect of the proposed legislation to provide directional guidance to the Government in drafting DESH. The most notable recommendation given by the Baba Kalyani Committee was – “Shifting the framework from export growth to broad-based employment and economic growth”. Other recommendations include the need for separate rules and procedures for service SEZs and manufacturing SEZs.

Keeping in view these recommendations as well as the need of the hour, DESH introduces new concepts such as:

* Establishment of Enterprise Hubs that allow the government to promote, focus and provide specialized infrastructure required for particular projects and industries (such as aerospace, defence, renewable energy etc.). This will allow the government to channel resources and money towards projects/industries of national/strategic importance.

* Freeing up land use and ownership in these enclaves to encourage economic activity and better utilization of infrastructure and resources in these centres.

* Removal of proximity and greenfield (fresh) development restrictions to qualify as a development centre.

* Maintenance of status quo with regard to principles established for SEZs for indirect taxes like customs duty and GST. Despite strong recommendation/push from the industry, the government has stopped providing income tax exemption to developers and units in these centres. If the concessional tax rate of 15 per cent (which is provided to new manufacturing units) can be extended to the units established in these growth centres.

* Greater focus on expanding scope beyond exports. To this end, DESH aims to promote local manufacturing, which will have significant ripple effects – such as better employment opportunities and overall development of the region.

* The introduction of the concept of a negative list of prohibited activities in the DESH Hub is also a welcome step. As in the case of foreign direct investment, which in 1998 moved from an approval regime to a regime where all activities were permitted unless explicitly stated in the negative list, such a move could deter entrepreneurs. will be encouraged to set up units in growth centres. Unique, value added and innovative activities. Interest may increase in other reserved or regulated activities such as agriculture, food processing, contract processing/manufacturing, value added trade, defence, arms and ammunition, aerospace, data centres, renewable energy, financial services etc.

* Single-window approval mechanism promotes better cooperation between state and central government. There should also be better project management than this.

We are also understood that DESH will align with the provisions of the WTO’s Subsidies and Countervailing Measures Agreement, although India is under no obligation to implement the recommendations suggested by the WTO Disputes Panel in its 2019 report.

Overall, DESH promises to take industrialization and services within the country to the next level. This change is welcome and necessary for the roadmap to make India the third largest economy by 2030.

(The author is Grant Thornton, partner (tax) in India)

read all latest business news Here