The move is expected to remove a long-standing “anomaly” and unlock significant business opportunities for companies such as GMR and Larsen & Toubro (L&T).
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The Commerce Department is preparing a Cabinet note to amend the Special Economic Zones (SEZ) Act to allow SEZ units to receive payments in Indian rupees, instead of foreign exchange, for services provided to clients in the domestic market, a move expected to remove a long-standing “anomaly” and unlock significant business opportunities for companies such as GMR and Larsen & Toubro (L&T).“A range of sectors, particularly maintenance, repair and overhaul (MRO), engineering, defence manufacturing and information technology, where SEZ units have been unable to fully participate in the domestic market because of the foreign exchange payment requirement, are set to benefit from the proposed amendment,” an official tracking the development told businessline.The proposal is to amend Section 2(z) of the SEZ Act, which defines `services’, by removing the requirement that services supplied by SEZ units to the DTA (domestic tariff area or domestic market outside the zones) must earn foreign exchange—a condition that does not apply to goods, the official said“This requirement for payment in foreign currency has created many problems in the provision of services by SEZ units to DTA entities. It increases transaction costs as the DTA entity has to buy foreign currency on payment of commission to AD bank, and then again the SEZ unit has to convert this foreign currency into INR on commission to AD bank. It discourages DTA entities from buying services from SEZ entities because they have to make payment in foreign currency,” according to the Export Promotion Council for EOUs and SEZs.For instance, SEZ units situated in MIHAN, Nagpur, SEZ or GMR Aero SEZ in Hyderabad are unable to supply MRO services to airlines in the DTA, while L&T MBDA Missile Systems, a SEZ unit in Coimbatore, is unable to provide MRO services to the Indian Air Force, EPCES highlighted. SEZ IT units, too, are unable to provide software development services to PSUs /Government offices. This forces these DTA units to import these services, the council argues.The matter has been extensively discussed between the Commerce Department, the SEZs, the RBI and the Finance Ministry on dropping the foreign exchange earning condition to boost the performance of SEZ units, the official added. “The Commerce Department is working on the Cabinet note based on the discussions. After approval by the Cabinet, the matter has to be cleared in Parliament,” the official said.In a communication to the Commerce Department, L&T MBDA Missiles System Ltd noted that defence companies, such as itself, could not expect their customers, i.e., the Ministry of Defence, to make payments in foreign currency to get maintenance and overhaul services from domestic companies. This significantly restricts the ability of SEZ-based defence companies to support the operational requirements of the IAF from within the country, which went against the government’s Make in India initiative.Published on August 2, 2026
