Multinational Corporations and Special Economic Zones in India

What an MNC is

• A multinational corporation owns or controls production in more than one country.
• It may run factories, offices or service centres abroad.
• A company that only exports goods does not meet this test.
• Foreign direct investment (FDI) is cross-border investment in a lasting business interest.
• In India, foreign investment in a listed company counts as FDI at 10% or more of paid-up equity. A parent can also control a business through management rights. (Source: RBI)
• MNCs invest abroad to reach customers, suppliers, skills and resources. Lower costs can matter, but access to new markets can matter more. (Source: NCERT)

How MNCs organise production

• An MNC can build a new foreign factory, buy a local company or form a joint venture. A joint venture shares ownership between partners.
• It can also hire local suppliers without owning their factories. A shoe brand may design and market worldwide, while local firms make the shoes under contract.
• These choices give the MNC different levels of control and financial risk.

Indian examples: Cargill and Ford

• Indian companies can become MNCs too. Tata Motors, Infosys and Asian Paints operate in several foreign markets.
• Cargill, a US food and agriculture company, entered a joint venture with India’s Parakh Foods in 2004. It bought the rest in 2005, gaining edible-oil refineries and a distribution network. (Source: Cargill India)
• Ford began operations in India in 1995. Ford and Mahindra announced a joint venture in 2019 and ended it in December 2020. Ford stopped domestic vehicle production by 2022.
• In 2025, Ford agreed to invest in a Chennai engine plant for export. Engine production is expected to begin in 2029. This is a planned restart of engine making, not a return to domestic car production. (Source: IndBiz)

What an SEZ is

• A Special Economic Zone is a designated area inside India with special customs rules.
• For approved operations, the zone is treated as outside India’s customs territory. That does not make it foreign land.
• The processing area supports export production or services. The non-processing area holds roads, power, water and offices.
• India opened its first Export Processing Zone at Kandla in 1965.
• The Special Economic Zones Act, 2005 was enacted on 23 June 2005. It came into force on 10 February 2006. (Source: SEZ Act, 2005)
• SEZ policy aims to promote exports, investment, jobs and infrastructure. Results differ between zones, so aims should not be mistaken for proven outcomes.

How an SEZ works

• A developer proposes a zone through the State government. The central Board of Approval considers it.
• A business then applies to the Development Commissioner for permission to operate inside the zone.
• The Domestic Tariff Area (DTA) is the rest of India. Goods entering the DTA from an SEZ are treated as imports. Section 30 applies customs duties to them.
• From 1 April 2026 to 31 March 2027, a one-time relief window lets eligible SEZ units sell goods in the DTA. The annual cap is 30% of the highest export value in any of the previous three years. It does not replace the usual duty rule. (Source: Relief window FAQ)
• SEZ units must meet a positive net foreign exchange requirement. Export earnings must exceed foreign exchange spent on imports over the prescribed period.
• Customs relief and GST are separate matters. (Source: SEZ Rules)

SEZ performance in numbers

• The Department of Commerce counted 276 operational SEZs on 30 November 2025. Operational zones have working units.
• The government also counted 368 notified SEZs on 28 February 2026. Notified zones have approval but may not all be operating.
• SEZ exports reached ₹14,63,669 crore in FY2024-25. That was about US$173.07 billion and 8% above the year before. It is an achieved result, not a target. (Source: Department of Commerce Annual Report 2025-26)
• A government update reported more than 31.73 lakh people employed in SEZs and ₹7.86 lakh crore in investment by December 2025. The figures use different dates, so keep each date beside its statistic. (Source: PIB)
• Export value alone cannot show whether local suppliers gained, jobs were secure, or public spending earned a return.

Tax: Section 10AA and the 2025 Act

• Section 10AA of the Income-tax Act, 1961 gave qualifying SEZ units tax deductions.
• Eligible units got a full deduction on export profits for five years, then 50% for the next five years.
• For up to five further years, they could claim a limited deduction on profits placed in a reserve and used for new machinery.
• Only units that began before 1 April 2021 qualified.
• The Income-tax Act, 2025 took effect on 1 April 2026. Section 144 keeps only the remaining years under the old law. A new unit cannot begin a fresh tax holiday. (Source: Income-tax Act, 2025)
• The income-tax deduction is separate from customs and GST. A tax holiday does not remove every tax obligation.

Gains, risks and labour

• SEZs can attract investment, support exports and create jobs. They may improve local infrastructure and link Indian firms to global supply chains.
• Results depend on local links. A unit that imports most inputs may create few orders for nearby suppliers. Some approved zones may remain underused.
• Land acquisition can displace farmers and communities. Work arrangements can affect job security and benefits. Compare formal and informal work in Organised and Unorganised Sectors of the Indian Economy.
• SEZ projects must follow environmental laws. Growth adds pressure on water, air and local infrastructure.

WTO dispute and current reforms

• In 2019, the United States challenged Indian export-related schemes at the WTO. The dispute is DS541, India — Export Related Measures. A WTO panel found several measures inconsistent with subsidy rules. (Source: WTO DS541)
• India and the US notified a mutually agreed solution on 13 July 2023. It ended that dispute. It did not repeal the SEZ Act.
• In 2024, non-IT and non-ITES SEZ units gained access to ICEGATE, India’s electronic customs system. Eligible units can also claim RoDTEP.
• For the WTO rules, see The WTO and International Trade Rules. For India’s 1991 reforms, see P.V. Narasimha Rao.

• The Department of Commerce reported 276 operational SEZs as on 30 November 2025.
• SEZ exports were ₹14,63,669 crore in FY2024-25, up 8%.
• The WTO DS541 case ended with a notified solution on 13 July 2023.