SEZ or special economic zone are commercial area with the basic intention to

promote foreign trade and attract more foreign investment, governed by more
liberal economic laws than the rest of the nation or state .Today special economic
zones exist in many countries but it is believed that China was the first country to
have given reality to this idea . In India, special economic zones (SEZs) were set
up to provide a hassle-free environment for exports and to replicate China’s
success in using SEZs to boost manufacturing and employment . During late 1990s
the then Union Commerce Minister Murasoli Maran visited the high tech SEZs in
China and was fascinated by their contribution to the rapid growth of GDP of the
country, which encouraged him to do the same in India. However by that time
India had already been introduced with the first export processing zone in Kandala
in Gujarat. But it was not SEZ but EPZ. India was not deemed to be very happy
with the EPZs because they were not contributing as was expected of them.
Therefore, the SEZs were conceived to be far efficient, calculated and modernized
than the EPZs . After many years of discussion and deliberation, finally in 2005
Special Economic Zones Act came to fruition. This Act provided for the
establishment, development and management of the Special Economic Zones for
the promotion of exports and for the matters connected with SEZs. At least 232
SEZs are in operation, and 351 SEZs have been notified under the SEZ Act, 2005.
Some incentives for setting up a sourcing or manufacturing platform within an
Indian SEZ include: Duty free import and domestic procurement of goods for the
development, operation, and maintenance of your company; Exemption from
the goods and services tax (GST) and levies imposed by state government. Benefits
of India’s SEZ policy have been good to some extent as it is one of the reasons
why there is an increase in the number of foreign firms operating in India. Since
2005, exports from the country have increased substantially, largely due to the rise
in sourcing and manufacturing platforms. But have these SEZs fared tremendously
as were the earlier expectations ? The signature initiative ‘Make in India’ – aiming
to transform India into a global manufacturing hub – specially mentions Special
Economic Zones (SEZs) for attracting foreign investors. But despite the strong
pitch, these export-oriented enclaves have hardly been able to draw significant
foreign investments. Almost 200 SEZs are functioning in India since the
introduction of the SEZ Act in June 2005. But these are just a third of the SEZs
formally approved for commencement of operations . The biggest problem faced
by developers in building SEZs was the difficulty in obtaining land. Some state
governments in India (e.g. West Bengal, Odisha) encountered strong political
resistance to acquiring land for SEZ development by the private sector. As things
stand, many of India’s SEZ’s now lie vacant, hurting not just economic growth but
equity.
There are more than one way to fund a new business venture and accelerate
its growth . It involves bringing in outside money at some point in their
venture. The two primary options present in front of the seekers are :
business debt financing or fundraise for equity investors. Each option
carries with them, their own pros and cons.
When you borrow money from an outside source and promise to return the
principal in addition to an agreed-upon percentage of interest, you take on
debt . With traditional types of debt financing one is not giving up any
controlling interests in their business. They get to make all the decisions,
and keep all the profits. Therefore maintain ownership. Another big pro is
that once the debt is paid, liability is over . Tax deductions is a huge
attraction for debt financing. In most cases, the principal and interest
payments on a business loan are classified as business expenses, and
they can, therefore, be deducted from your business's income at tax
time. The most significant and obvious disadvantage of using debt is that it
requires repayment, no matter how well the company is doing, or not . This
can be a huge burden specially on a startup . Too much debt can negatively
impact profitability and valuation. It might seem attractive to keep bringing
on debt when your firm needs money (levering up) but each loan will be
noted on your credit report, hence affect your credit rating adversely . Also
high interest rates depending on the macroeconomic stability cannot be
discounted .
Equity financing involves selling shares of your company to interested
investors or putting some of your own money into the company. With
equity financing, there is no loan to repay. The business doesn’t have to
make loan payment like in debt financing which can be a relief specially if
the business doesn’t initially generate a profit. This gives the necessary
freedom to invest more money into your growing business. If a company
lacks creditworthiness – through a poor credit history or credit rating or
lack of a financial track record – equity can be preferable or more suitable
than debt financing. So the credit issue is gone. Forming informal
partnerships with more experienced individuals or firms allows ones own
business to gain knowledge and increase networking . With all the
advantages that equity financing seems to have, there are cons to it too.
Unlike in debt financing , one looses control of their business here . The
price to pay for equity financing and all of its potential advantages is that
you need to share control of the company. Sharing ownership and having to
work with others could lead to some tension and even conflict if there are
differences in vision, management style and ways of running the business.
Another disadvantage is that profits have to shared but that can be a
worthwhile tradeoff if one is looking to gain from the business acumen of
the investor.
In just couple of weeks, the Coronavirus pandemic had shaved off nearly a
third of the global market cap. The Indian equity market has been hit hard
too but has been showing extreme volatility with significant rise but
tremendous fall . The spread of the virus has triggered panic across the
world and shaken the confidence of investors . The market has in the
world’s largest economy, the US, has reacted to recent unpredictability with
large drops and there have been safeguard pauses trading for 15 minutes in
hopes the market will calm . But fluctuations still continues till date . The
U.S. Securities and Exchange Commission mandated the creation of
market-wide circuit-breakers to prevent a repeat of the Oct. 19, 1987
market crash, in which the Dow plunged 22.6%. The situation continues to
be grim . What made things worse for the global markets was the ongoing
crude oil price war between Russia and Saudi Arabia . Earlier, only the
equity and debt markets were impacted by the Covid-19 scare; now the
commodities and currency market are in turmoil due to the crude oil war,
injecting further volatility .
With significant cuts in benchmark indices, the Indian equity market has
entered the bear market territory . Sensex PE is below its 10-year average
With the market back in the fair valuation zone, long-term investors can get
in slowly. The current Sensex fall of nearly 32% has been the fastest—from
14,953 on 14 January to 28,288 on 19 March—compared with previous
dips. In line with the Foreign Institutional Investors’ response during a
global financial crisis, there was a heavy sell-off in the Indian equity
markets, with a net outflow of whooping Rs 25,938 crore between January
and March . Even gold which is supposed to be a safe haven for investment
has seen a steady decline . This time the prices have fallen since 1 February,
barring a brief spike sporadically . Rupee has hit a new low of below 76
mark . Another safe haven asset, government securities, are also rallying.
The 10-year US treasury yield is now at 0.75%. The 10-year government
bond yield in India is also close to a 10-year low. Since the US Fed has
already cut the rates by 50 basis points, the debt market is hoping for a
similar rate cut by RBI to fight the weakness in the domestic economy.