DESH must take into account the WFH
The government formulated the Special Economic Zones (SEZ) policy in 2000 and implemented it through the Foreign Trade Policy. The objective behind the creation of the SEZs was to attract foreign direct investment, develop infrastructure, facilitate access to world markets for national companies and encourage exports. After the initial momentum, the SEZ framework fizzled out, leaving a gaping gap between the initial promise and actual delivery.
Moreover, India’s SEZ framework was challenged before the Dispute Settlement Body (DSB) of the World Trade Organization, which ultimately ruled that India’s SEZ policy was inconsistent with WTO guidelines.
While the SEZ framework faced challenges, the global business environment underwent a drastic change due to the pandemic-induced lockdowns. Covid-19 has forced governments to mandate a comprehensive work from home (WFH) protocol to productively engage employees and address operational challenges. Most companies continued working from home or switched to a hybrid model even after lockdowns lifted.
However, SEZs have encountered operational difficulties in obtaining FMH clearance during the pandemic and thereafter due to certain restrictions on the use of capital equipment, including laptops for specific purposes, the movement goods from/to SEZs, issuance and validity of ID cards, etc., leading to commercial losses and an obligation to start work “on site” and even prompting units to rethink their pursuit in the framework of the SEZ program.
The government has recognized the challenges facing SEZs and to address the concerns, the Department of Commerce issued a notification on July 14, 2022, inserting a new Rule 43A in the SEZ Rules, 2006, establishing a policy allowing teleworking for SEZ employees. units.
The new rule defines the categories of employees – i.e. IT and IT services employees, temporarily incapacitated employees, traveling employees and employees working off-site – who will be allowed to WFH or any location outside the SEZ, subject to a limit of 50 percent of the total number of employees. The validity of this authorization will be one year from the date of this consent, subject to an extension which may not exceed one year at a time.
In addition, the Department issued Executive Order No. 110, dated August 12, 2022, providing SOPs for implementing the provisions contained in Rule 43A. The new rule comes with several procedural and administrative compliances on SEZs, removing the required flexibility.
The SEZ framework in India had been strained even before the pandemic and the ministry had formed a SEZ Policy Review Committee under the chairmanship of Baba Kalyani, Chairman of Bharat Forge, to assess the SEZ policy and make suggestions to eliminate bottlenecks. A detailed report was submitted by the committee, highlighting the need for a major overhaul of the SEZ regime.
To address operational and compliance challenges and redesign the scheme to make it more attractive, the government is formulating a new scheme — the “Development of Business and Service Hubs” (DESH). The bill was due to be tabled in the monsoon session of the Lok Sabha but was postponed. It is expected that a WTO-compliant DESH bill will be implemented in the current fiscal year, which would promote economic activity, generate jobs, attract investment, remove bottlenecks strangulation and would adopt the main recommendations of the Baba Kalyani report.
DESH should provide more flexibility to units currently operating under stricter SEZ law and to new units registering under DESH. SEZ and its successor DESH are expected to accommodate current demands, including WFH popular culture. Many units are facing a mass exodus of employees, as employees refuse to operate “on site” and prefer the telecommuting model for the obvious benefits of a better work-life balance.
The SEZs are counting on the government to implement the DESH bill at the earliest to meet the current challenges, so that the units can operate more flexibly and foster growth.
Barad is Partner and Singhania is Director, BDO India
September 13, 2022