The novel coronavirus has brought the global economic structure to its knees. With nations world over entwined in a parallel dance, international trade and relations have been temporarily put under lockdown. To say that this has taken a serious toll on cross-border private sector investment worldwide would be an understatement.
According to a recent report from the UN Conference on Trade, Investment and Development (UNCTAD), global foreign direct investments (FDI) stands to suffer significantly in the wake of the pandemic. UN economists and experts project a 15% decline in the global FDI. The downgradation of its erstwhile growth estimations no longer depends on how long the world’s battle with Covid-19 will last.
The UN body suggested that growth in the global economy will register a drop by 0.5-1.5% in the current calendar, depending on how quickly the pandemic blows over. According to the UNCTAD report, the corresponding “downward pressure on FDI will be 5-15%”. The UN agency further highlighted that the outbreak has inflicted the greatest “demand shock” in China, citing a 70% drop in sales in February reported by Toyota.
The outbreak’s impact on China’s economy meant that the global supply chains would also bear the brunt of the slowdown. After all, China not only makes up a third of manufacturing globally but is also the world’s largest exporter of goods. For India, an economy that is significantly dependent on its second-largest trading partner, China, for manufacturing, trade, as well as private sector investments, the implications have proved to be even graver.
The China-India Economic Link
The moment the enormity of the pandemic hit the Indian government with all its force, the PM mandated for a sudden lockdown to be followed across the country. The result? The disruption of the supply chain within the country as well as outside it, among other things.
The current crisis has severely impaired the country’s financial link with China, on which a range of Indian sectors including furniture, pharmaceutical, computers, automobile, toys, etc. depends for imported goods and raw materials worth $70 Bn. According to data from the Ministry of Commerce, China contribution to India’s total imports share during the last fiscal stood at 13.7%, while receiving 5.1% of India’s total exports. It was estimated in February that the pandemic has the potential to damage bilateral trade worth $87 Bn between the two countries.
And that’s not all. Not just India’s manufacturing industry but also its burgeoning startup ecosystem has previously derived strength from the influx of funds from China. It is no wonder then that, speaking at TiE Global Summit 2019, leading names from China’s investor community had asserted that they consider India a critical market. Substantiating this claim is the fact that Chinese companies had made a cumulative investment worth $3.9 Bn in Indian startups in the previous calendar.
However, given the circumstances, it is unlikely that Chinese investors will now be keen on infusing funds into the Indian market until the pandemic situation is reversed. Until the Indian market regains its erstwhile spirit or emerges from the crisis stronger than before, early- and growth-stage startups will depend upon the strength of the domestic investment sector.
The Indian Investment Sector At Present
It would be an understatement to say that the Covid-19 scare has dealt a significant blow to economic activities in India across domains. The strangulation of mobility, along with the subsequent supply chain impairment, has caused businesses across sectors to scale down their operations while the corporate sector has enacted work from home policies.
While the outbreak has undeniably affected the financial ecosystem in the country, the series of scandals that it witnessed even before the entry of coronavirus in India had already shaken the confidence of investors and lenders alike. Now the cumulative burden of mounting conservatism among the investor community has fallen upon the shoulders of the startup ecosystem, weighing down the growth of more than 50,000 Indian ventures.
The muted economic activity has only served to aggravate the challenges for the nation’s startups. The most affected are the ventures that are in their growth-stage and are waiting to raise the next rounds of funding. Further, a prolonged lockdown may cause funding timelines to be delayed, even more, adding to the worries of ventures who were looking to leverage the capital infusion to scale their operations.
On the other hand, while the prospects of startups looking to raise fresh funding indeed look grim, they are not altogether absent. This is because leading investor bodies are leveraging the online ecosystem to connect with their potential investee companies, keeping the investment machinery in motion amid the lockdown.
The Future Is Digital
The cessation of business operations that relied on physical activity has been accompanied by a paradigm shift across sectors. Under this, modern enterprises have shifted their playing field to the digital domain to conduct business as usual while tech-intensive industries are registering a boom. The Indian technology sector, one of the country’s most dynamic sectors, is home to over 9,000 technology-led start-ups in the ecosystem. With the country under lockdown, it is this sector that is coming to the rescue of quarantined people on the back of cutting-edge digital solutions.
In the wake of the implementation of remote working policies across sectors, video conferencing apps such as Zoom have witnessed an immense increase in revenue and customer base. The app added over 2.2 Mn active users in February this year. With the pandemic bringing to light new innovations powered by new-age technology, the future will see start-ups in the digital and technology sector flourish.
Recently, NITI Aayog has recently onboarded eight tech innovators from across India to optimise the country’s tech infrastructure in a bid to enhance the country’s stance against the incumbent crisis. With sufficient support from the investor community both within and outside the country, digital and technology-led startups are bound to prosper.
In conclusion, while the pandemic has thrown the country’s economy in a state of unpredictability, one thing can be said for certain. Once the crisis recedes, India’s economic machinery will be activated at once and in earnest as it whirrs to meet the pent-up demand. It is only till then that the investment community needs to sustain and help the startups under their aegis to innovate their way out of the pandemic.