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Small and medium businesses (SMEs) comprise one-third of India's GDP and employ millions of people, but they were severely harmed by the statewide COVID-19 lockdown restrictions in the years 2020 and 2021 respectively, which lasted for months before being gradually eased. While nearly half of entrepreneurs in such businesses claimed their business was threatened by delays in consumer payments and issues meeting operating costs, less than a third had appealed for government assistance. At the same time, many entrepreneurs identified digitisation, consumer behaviour shift, new business prospects, and efficiency and resilience gains as positives to their businesses.

Having just picked up from the deadly first wave, the second COVID-19 wave in India posed major modelling and model-risk management issues for various sectors like financial institutions, e-commerce businesses, tech companies, etc. Businesses have realised benefits like cost reduction and increased productivity as a result of the pandemic have accelerated the pace of digitization across sectors. Due to the COVID-19 crisis, global digital adoption has expedited by years. Rethinking how technology can fulfil our needs is part of the big reset as firms and countries plan for a post-COVID-19 future.

Research and market patterns predicted India's e-commerce market to grow exponentially as a result of the pandemic.

A recent survey conducted in April, 2021 revealed that 49% of the Indian consumers had shifted towards e-shopping as a preferred mode. However, such a shift was not confounding in the year 2021 since the consumer base in India had already gotten a hang of this set-up since the first wave hit the country. To cite an example of how well these businesses did during the first wave, some of the major players in the Indian e-commerce business picture like Flipkart, Amazon, Snapdeal, Paytm, etc.,  managed to minimise their losses by INR 1,125.74 Crore in the financial year 2020.

In order to meet regulatory challenges in this sector, the current draft e-commerce policy suggests ways to boost exports, handle data, and promote fair competition among sellers and vendors in marketplaces. The policy now requires e-commerce players to ensure transparency on their platforms and allows the government to set up an investigative body to enquire into violations, if any, and initiate action against them.

In terms of other players which turned the covid crisis into opportunities, Dunzo, an e-commerce delivery startup, recorded a 100 million USD annualised gross merchandise value (GMV) business. While most of the businesses in India were plummeting, many start-up companies like Dunzo, were not only maintaining their gross margin profitability but were also striving in terms of their revenue from operations.

With international investors already coming to India's private loan market, the sector has attracted investors such as True North, which has established a credit business.

Before the pandemic, India was already dealing with more than USD 200 billion in non-performing loans in its banking system, as well as USD 300 billion in the highly volatile Non-Banking Financial Companies (NBFC) sector, leaving borrowers with few options for filling the gap. The pandemic's added impact has resulted in an even higher demand for alternative lending, with the ability to lend and assist high-quality businesses. KKR & Co. Inc. (KKR), Brookfield Asset Management, and other international investors have established operations in the country. KKR has two non-bank financial companies (NBFCs) that deal with corporate and real estate debt.

The Ministry of Electronics and Information Technology (MeitY) recently said that the electronics manufacturing industry is suffering from a 10% cost disability. Given the capital-intensive nature of display production, incentives for the sector to establish display fabrication facilities are required. MeitY has already devised a plan to establish display fabrication plants across the country. The decision follows the government's flagship Production Linked Incentive (PLI) Scheme (2021), which aims to turn India into an export hub and boost electronics value addition. The establishment of a display manufacture plant would serve as a stepping stone toward India's realisation of ‘atma-nirbhar’ status.

A bill to establish a government-owned development finance institution (DFI) was also approved by the government in the year 2021. These entities are tasked with providing long-term funding for infrastructure and development initiatives throughout the country. The debt trajectory was not addressed in the medium-term fiscal policy strategy submitted in Parliament this time alongside the Union budget, as it would be addressed by a new fiscal responsibility and budget management (FRBM) Law.

India has weathered one of the world's worst economic downturns in decades. Despite a temporary fall in 2020 and 2021 respectively, the overall trajectory of company share prices in India has been good since the outbreak, and funding continues to expand at an unprecedented rate. As for what the year 2022 holds, improving the translation of research into new businesses, obtaining additional funding, fostering entrepreneurial talent, and establishing worldwide networks will all be critical to future success.

Gautam Khurana
13 July 2021

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