Covid-19 and Startup India – Future?
The spread of coronavirus has created an unprecedented economic situation worldwide including in India. In particular it threatens sustainable economic growth and large-scale employment opportunities envisaged under Startup India1. As per the Macro-Economic Framework Statement 2020-21, the nominal growth of the Indian economy is expected to be 10 percent in the financial year 2020-21. The Statement acknowledged that Global headwinds and challenges in the domestic financial sector had moderated the growth of Indian economy in 2019-20 (real GDP growth moderated to 5.0 percent in 2019-20 as compared to 6.8 percent in 2018-19). However, as an overview of the economy, the Statement stated that fundamentals of Indian economy remained strong and GDP growth is expected to rebound from the first quarter of 2020-21.
The coronavirus related developments seen globally in recent weeks and India lockdown for 21 days starting midnight of 24th March 2020 have raised questions on the future growth of the Indian economy. The Global recession has further added to the prevailing uncertainty (growth of global output was estimated at 2.9% in 2019, a decline from 3.6% in 20182) of the future of the Indian economy.
Given the inherent nature of start-ups a significant percentage fail to succeed. Startup India initiative is to support young Indians today who have the conviction to venture out on their own. It would be most unfortunate should the ecosystem sought to be established through Startup India get derailed owing to coronavirus pandemic. While there are concerns as to whether India will be able to recover from this crisis, it is also an opportunity to seize the moment and establish India as an investment destination.
In a crisis situation such as this, it is expected that investors would disappear and availability of funds be greatly hampered. Fresh investments, if any, would be few and at rock bottom valuations shaking the confidence of promoters. The overall positive sentiment would get significantly eroded. Start-ups would bear the full force of the adverse impact of coronavirus on the economy.
While Indian economy is going through shock, it is crucial that the entrepreneurial spirit be preserved. The supply side damage needs to be curtailed and capital formation must continue. It is crucial that the recovery for India be V-shaped or at least as closer to deep V- shape as against U-shape (while an L-shape would be disastrous).
1Startup India is a flagship initiative launched by the Government of India in January 2016 with intent to catalyse start-up culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India. 2International Monetary Fund (2020), “Tentative Stabilization, Sluggish Recovery?” World Economic Outlook, Washington D.C.
The recent measures by the Central Bank of India in the backdrop of the current situation to provide comfort to the financial markets by boosting liquidity and to preserve financial stability thereby improving sentiment is a welcome step. The relief package to help the poor and relief measures for taxpayers towards compliances & interest liabilities are much need steps undertaken by the Finance Minister. These measures seek to mitigate the impact of coronavirus by reducing stress, ensure that liquidity problems do not arise, nudge banks to put money into the real economy, prevent capital problems arising due to write-downs, provide financial support to the poor in these trying times and leave more cash in the hands of businesses and people.
But are these measures enough for a start-up, being most vulnerable?
The authorities have indicated their willingness and shown intent to take further steps as may be required in the coming days. The COVID-19 Economic Response Task Force announced by the Indian Prime Minister Mr. Narendra Modi needs to hit the ground running, be fully aware of the situation on real time basis, be proactive in its decision-making, be prompt in execution of decisions taken, ensure their successful delivery and above all be flexible in its approach.
The fight against coronavirus is not likely to be a short-term one but a long drawn out one given the likely possibility of its recurrence. While taking measures to mitigate the risks to the financial system, it is of utmost importance to simultaneously put in place robust unique measures to support businesses and consumers on immediate basis and on need basis in the future too. Start-ups will definitely require more focussed approach and dedicated hand- holding.
India is uniquely poised at crossroads today and can convert this adversity to its long-term advantage. But for that India will need to think out of the box.
Rajesh Lal
Chartered Accountant
☎: +91-9971033977
✉: rajeshlal@rajeshlalandco.com
LinkedIn: https://in.linkedin.com/in/rajesh-lal
