The Commerce Department is moving to amend the SEZ Act to allow service providers in Special Economic Zones to accept payments in Indian Rupees for domestic work. Currently, these companies must bill in foreign currency, which adds costs and complexity. The change aims to support sectors like defence, aerospace, and IT by making it easier to serve local clients, including government agencies.
The Ministry of Commerce and Industry is working on a legislative change to the Special Economic Zones (SEZ) Act that could reduce operational hurdles for domestic service providers. Under existing rules, SEZ units that supply services to customers within the country are required to bill in foreign currency. While SEZ units supplying goods already have the flexibility to accept Indian Rupees for domestic transactions, service providers remain restricted to foreign exchange requirements.
The government is drafting a Cabinet note to amend Section 2(z) of the SEZ Act to remove this mandate for service providers. This regulatory shift is intended to lower transaction costs and remove administrative friction that currently makes it harder for Indian firms to compete for local contracts against international service providers. For many domestic businesses, including public sector units, the requirement to process payments in foreign currency adds unnecessary complexity and costs to the procurement process.
The current system has specifically impacted high-tech and strategic industries where local companies hold necessary technical approvals but face payment hurdles. For instance, the MRO (Maintenance, Repair, and Overhaul) facility operated by GMR Aero Technic in Hyderabad has faced operational challenges when servicing domestic airlines. Similarly, the L&T MBDA Missile Systems facility in Coimbatore, which supports critical defence equipment like the Mirage-2000 missile launchers for the Indian Air Force, has had to navigate these foreign exchange constraints despite being an indigenous supplier.
By allowing Rupee payments for these services, the government aims to encourage more domestic procurement and integration of SEZ units into the local economy. This could improve the financial flexibility of firms operating in the IT, engineering, and aerospace sectors by eliminating the need to manage foreign exchange for transactions that occur entirely within India.
The Commerce Department is currently coordinating with the Ministry of Finance to iron out the technical details of the proposal. Once the inter-ministerial consultations are completed, the draft will be submitted to the Cabinet for formal approval. For companies operating within these zones, the successful implementation of this amendment would be a significant step toward simplifying their business operations and strengthening their ability to serve the domestic market effectively.