Will the Recession Impact the Indian Startup Landscape?


Since the pandemic, you have probably been asking yourself, "Are we heading into a recession?" The looming recession for India is a hard pill to swallow. But one must accept the fact that it is coming, and once it impacts the entire globe, India will not be immune to the effects. The cumulative impact of COVID and the Russia-Ukraine war has left the global economy in dire conditions. 

According to a private survey, approximately 66% of CEOs in India anticipate a global recession, while 86% of CEOs worldwide concur. They also believe that it will come in the next twelve months and will be mild and short. However, no matter how short or mild you think it is, you need to be prepared before it takes a toll on your business and finances. 

Is Recession Coming to India Too?

Chaos in the stock market, inflation, and rising interest rates have left the economy open and vulnerable. According to the World Bank, a recession is imminent. Since the beginning of 2022, there has been a consistent slowdown in global funding. Since 2016, the global output should have increased by 22%. But then the pandemic hit us hard. This resulted in the output currently being at 17%. The slowdown is resulting in the GDP going down, which is affecting India in more ways than you can imagine. 

Also Read: How to Recession Proof Your Retirement

How will the Recession Affect the IT Sector?

The impending recession will have a huge impact on the economy of the US and subsequently in India as in the Indian IT sector, a huge chunk of revenue comes from the US. The revenue that India gets from businesses in the US can be between 40% and 75%.  

However, despite all of these facts pointing out that it is not really a good time for the IT sector, the good news is that we are quickly shifting to digital transformation. One of the best investments businesses can make during the recession is getting everything digital. Meta, 5G, AI, and Digital Thread are now currently dominating the digital transformation trend. During this time, mobile development, analytics, and outsourcing are going to become big for IT companies too. For the last several years, Indian IT companies have become strategic partners, which should give them some leverage when the recession hits.

How are the Startups Being Impacted by the Funding Slowdown?

India is the third-largest startup country in the world. There has been a 15% growth in startups between 2016- 2022, as the number of investors and incubators increased a lot during this time. The report says that the startups received more than $21 billion as funding in 2021 alone. 

However, when we are talking about the impact of a recession on business, we must recognize that there is a funding slowdown. This is giving birth to many struggling startups as they are coping with the increased cost of resources and energy. Startups are considering layoffs as global investment falls. While downsizing and unit economics have become the priorities of struggling startups, it is important to focus on scalability too. The scalability of the company also determines if it can sustain itself in a time of rapid growth.

How to Prepare for the Coming Recession

India is ranked the 6th largest economy in the world, and the World Bank reports that India has gone up 23 positions with rapid growth in business and entrepreneurship. Being at the 46th spot on the Global Innovation Index, India has been consistently proving that the companies here are not going to get affected that easily. In fact, most of the CEOs in the country are determined to bounce back in no time. 

While the banking sector is taking its own measures, companies in India are becoming more proactive too. From digital transformation to strengthening digital security, they are investing in what is crucial for the business. Along with this, at least 97% of companies are also focusing on keeping employee morale high. 

You can survive this recession too. Only, refrain from making major investments and business decisions. Do not start selling your shares out of fear, and do not get new debts. Cost cutting is necessary, but at the same time, upgrading is also important. Hence, choose wisely. Also, accept the fact that, in the face of a recession, your business will most likely be affected. But this does not mean that there is no turning back. 

How the Government of India can Help Businesses in a Time of Recession?

When a crisis hits, it is obvious that everyone will wait for the government to step in and save the day. The government of India can do that in the following ways:

  • Introducing funds and financial support for the smaller companies that are suffering to survive
  • Bringing in new schemes and support for MSMEs
  • Providing financial aid to different sectors like agriculture and real estate so that the recession does not create a huge job crisis
  • Offering aid to the companies that do not lay off their employees.
  • Supporting the banking sector and digital transformation
  • More aggressively supporting Made in India campaign  

2023 is going to be a difficult year for many companies all over the world. But if you have the protective shield of strategies in place, you can survive and thrive even then. Watch this space for more such ideas. 

© 2024 - SehgalNotes. All Right Reserved.