The world economy is slowing down. This could be good news for Indian startups

Every crisis brings up opportunities. It is up to smart people to not waste them

Dr. Apoorva Ranjan Sharma
Updated: May 11, 2020 11:04:53 AM UTC
Image: Shutterstock

Covid-19 has all but made sure that the world economy is going to experience a recession. However, there is a silver lining for India. The Economic Intelligence Unit (EIU) published its revised growth forecast for G-20 countries as the pandemic rages all around us, and downgraded India’s FY21 GDP growth from 6 percent to 2.1 percent. Why is this a silver lining? That’s because despite the downgrade, India will be the fastest growing economy in the world.

Take a look at the table below: startups-economy-s

“The global economic picture is looking bleak, with recessions in almost every developed economy across the world. We assume that there will be a recovery in the second half of the year, but downside risks to this baseline scenario are extremely high, as the emergence of second, or third waves of the epidemic would sink growth further,” said Agathe Demarais, global forecasting director, EIU, in the forecast update on its website.

The Eurozone, in particular, will be hit very hard. Germany, Italy and France are facing mid-to-high single digit negative growth. Germany has a manufacturing sector that is very dependent on exports, and faces a double whammy as supply chains across the world have been hit and demand will be low. If the rest of the Eurozone starts recovering in the second half of 2020, expect Germany to take longer. The US will contract as well as demand in the world’s largest consumer market slows down with people opting to spend on essentials.

India and China look to be the best bets for investors to park their capital in as the rest of world goes into negative territory. In India, there are sectors that will defy the virus to continue to grow: Education (MOOCs in particular), e-commerce, logistics, health and pharma, retail and IT. Apart from these, even agri-businesses should not take a very large hit (relatively speaking). Telecommunication and utilities should manage to hold on. Old-school industries like manufacturing, real estate and travel and tourism will be hit the hardest as demand slows down. Non-essential FMCG will also slow down.

But let’s go back to the sectors that will continue to grow. Most of these are what we call start-up sectors. These are companies whose founders have bet big on technology and reduced face-to-face interaction even before Covid-19. Edtech companies such as Byju’s and Vedantu have seen massive spikes in student enrolment. Byju’s says there has been a 60 percent uptick while Vedantu says traffic has surged 52x as it started offering courses for free.

Covid-19 has exposed the inability of India at the primary healthcare level. The aftermath of the pandemic will be a great opportunity for start-ups and investors in this space. Forget fancy hospitals, India is woefully under-prepared on every level in the healthcare chain, from supplies to equipment to medicines.

It’s the same case with banks and financial services companies. NPAs are certain to rise in the absence of extraordinary reforms by the Centre. This means the role of tech will be accelerated in the finance sector as companies will try to reduce manpower. It’s a great opening for tech companies in the space of artificial intelligence and machine learning to collaborate with the world of finance on an even larger scale.

As more money comes into India to fund these startups, the country’s pace of growth will pick up. Think of it as a virtuous cycle. More money comes in, there is more cash in the system, start-ups and people spend more, and the economy recovers faster. The discerning investor would do well to eye specific sectors and invest in startups with a solid plan and a path to profit. Every crisis brings up opportunities. It is up to smart people to not waste them.

The writer is co-founder and managing director of 9Unicorns, a startup incubation platform

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The thoughts and opinions shared here are of the author.

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