SEZ Rule Relaxation in India: Introduction
What if a single policy tweak could attract over ₹13,000 crore in high-tech investment in just days?
That’s exactly what happened in India—quietly, but shockingly—when the government loosened key rules governing Special Economic Zones (SEZs). In a sector as fiercely competitive and geopolitically sensitive as semiconductors, this move didn’t just change the rulebook—it changed the game.
Why Semiconductors Matter More Than Ever
From artificial intelligence to electric vehicles, semiconductors are the “brains” of modern life. Every smartphone, satellite, defence radar, and smart appliance relies on these tiny chips.
Yet, for decades, India depended heavily on imports—especially from China, which controlled over 35% of global chip output as of 2021. The COVID-19 supply chain crisis jolted India into action, spotlighting the urgent need to build chip independence.
The Shocking Policy Shift: What Changed in SEZ Rules?
In early June 2025, the Indian Ministry of Commerce and Industry amended the SEZ Rules, 2006, targeting the semiconductor and electronics manufacturing sectors. Here’s a breakdown of what changed—and why it’s so groundbreaking:
Rule 5: Land Size Requirement Slashed
In the past, SEZs needed 50 hectares of contiguous land to manufacture electronics or semiconductors. That threshold has now been drastically reduced to just 10 hectares.
This change allows for smaller and more flexible investments in chip manufacturing, especially from startups or mid-sized enterprises that may not have access to large parcels of land or massive capital outlays.
Rule 7: “Encumbrance-Free” Land Clause Relaxed
Until now, SEZs could only be established on land deemed encumbrance-free—meaning no legal claims, liens, or ownership disputes. But India’s complex land governance made this a major hurdle.
The updated rule gives the Board of Approval the authority to relax this condition. That means land with minor legal or administrative issues can now be considered for SEZ development, accelerating project timelines significantly.
Rule 18: Domestic Sales Now Allowed from SEZs
Traditionally, SEZs were designed with export in mind. Units were not allowed to sell in the domestic market. However, the new amendment allows semiconductor and electronic component manufacturers operating within SEZs to sell their products within India, after paying applicable duties.
This is a pivotal change. It provides a cushion against international trade volatility and ensures a steady supply of chips and components for the domestic market.
The ₹13,000 Crore Shockwave: Early Deals Already Signed
The impact of the policy shift was almost immediate—a rare outcome in India’s traditionally slow-moving manufacturing landscape.
Micron Semiconductor Technology India
Micron announced a massive investment of ₹13,000 crore to establish a new semiconductor facility in Sanand, Gujarat. The facility will occupy approximately 37.64 hectares and focus on advanced chip manufacturing. This is one of the largest single-location investments ever made in India’s chip sector.
Aequs Group’s Hubballi Durable Goods Cluster
Another major move came from the Aequs Group, which is setting up an SEZ unit for electronic component manufacturing in Dharwad, Karnataka. With an area of 11.55 hectares and an investment of ₹100 crore, this project represents how smaller-scale setups are now viable thanks to the relaxed land norms.
Together, these two projects mark the beginning of a significant shift in India’s semiconductor manufacturing capabilities.
Why SEZ Rule Relaxation is a Game-Changer
Eases Entry Barriers for New Players
Lower land requirements and the flexibility around legal encumbrances have made SEZ participation more accessible. Smaller players who were previously excluded from the semiconductor space due to resource constraints can now contribute meaningfully.
Boosts Domestic Chip Security
A more robust chip supply chain is produced by permitting SEZ units to supply domestically. As global trade becomes more unpredictable, ensuring domestic availability becomes crucial.
Attracts Global Confidence
Policy clarity, streamlined regulations, and pro-investment incentives send a strong message to global tech giants. India is becoming a strong competitor in the global semiconductor competition because to these developments.
How This Ties into India’s Larger Semiconductor Mission
This move doesn’t exist in isolation. It aligns closely with a broader policy landscape focused on turning India into a global semiconductor manufacturing hub.
Semicon India Programme
Launched in 2022 with a budget of ₹76,000 crore, the Semicon India Programme supports the development of fabrication units, design and testing centers, and chip packaging facilities. It is already facilitating partnerships with international players and encouraging domestic innovation.
Ongoing Mega Projects
Several major projects are being established under India’s new semiconductor push. These include:
- Tata Electronics has established a massive ₹91,000 crore manufacturing facility in Gujarat’s Dholera region.
- A joint venture between Foxconn and HCL to build a ₹3,706 crore chip facility in Uttar Pradesh.
- The Uttar Pradesh government, headquartered in Lucknow, has announced a ₹2,500 crore initiative to set up a cutting-edge semiconductor fabrication facility in the state.
These projects reflect how policy reform, when executed strategically, can unlock massive industrial momentum.
What Lies Ahead: Opportunities and Hurdles
Opportunities
The revised SEZ framework could lead to a surge in high-value tech jobs, especially in states like Gujarat, Karnataka, and Uttar Pradesh. It also paves the way for the growth of ancillary industries such as testing, packaging, and semiconductor-grade material supply.
This development enhances India’s brand image in the global tech ecosystem and aligns with national goals under Make in India and Atmanirbhar Bharat.
Challenges
India still faces a shortage of skilled professionals in semiconductor design and fabrication. Moreover, semiconductor fabs require uninterrupted power and ultra-clean water—two infrastructural areas where India needs rapid scaling.
Globally, countries like the United States, Taiwan, and South Korea are also ramping up efforts in semiconductor self-sufficiency. India will have to move quickly to avoid being left behind in this race.
Final Word: The SEZ Shift That Sparked a Semiconductor Surge
India’s semiconductor journey has long been an aspiration, but with the SEZ rule relaxations, it appears closer to reality than ever. With over ₹13,000 crore in approved investments within days of the policy changes, it’s evident that the revised SEZ framework is more than just administrative tinkering—it is a catalyst for transformational growth.
If India can now invest in skill development, bolster infrastructure, and maintain consistent policy direction, the country could very well emerge as a semiconductor powerhouse in the coming decade. The SEZ amendments might just be the unexpected but necessary jolt that launched India into the global chip race.
