Summary. 2020 was a tough year for all of us. As we venture into 2021, let’s look back at the major events in the nation's economic landscape and the aftermath. The govt. of India reported the worst ever GDP contraction in the last decade, and this directly meant laying off several employees across businesses. Unemployment numbers went up as well and the icing on the cake was the onslaught of Covid-19. So how can entrepreneurs bounce back in such testing times? That’s what this blog is all about. It gives you an overview about using various SaaS platforms to your advantage, restructuring business models, implementing norms working from home, etc. - all of them are ways to deal with the current hardships.
Although it was expected that there would be a significant contraction in India’s GDP, when the govt. released the data for the first quarter of the current financial year on the 31st of August, last year – the majority consensus was that the decline would not exceed 20% and yet, as it turns out, the GDP contracted by 23%. This is the worst contraction in the last 11 years of India’s economic history.
Effect of decline in GDP growth rate on entrepreneurs
The GDP growth rate is in direct correlation with the various sectors that comprise an economy. A slump in the GDP can imply several things - let us begin by trying to understand what GDP is; it stands for Gross Domestic Product and it is used to evaluate a country’s economy. It determines the final value of all goods and services produced within the economy in a certain period. In broad terms, a boost in the GDP is considered as an indication of good economic health.
When real GDP is growing strongly, employment is likely to increase as companies hire more workers for their factories and people have more money in their pockets. When the GDP shrank as it did in many countries during the recent global economic crisis, followed by the pandemic; businesses were obligated to dismiss several employees and place constraints on spending. This had a direct impact on startups - since, they function under tight budgets and could not afford any losses incurred due to the lockdown imposed by the government, to tackle the pandemic.
Understanding GDP and unemployment numbers
The data for the first quarter of the financial year 2020-2021 showed a shocking contraction of 23.9 percent in the GDP. If there is a fall in the GDP in the next financial quarter as well, then it would imply that our economy is in a recession. The economic slowdown has been attributed to the lockdown imposed by the Indian govt. to combat the COVID-19 pandemic.
Although, the decline seemed like a bolt out of the blue; it has been in the works long before the pandemic hit the global economy. Falling GDP and a considerable decline in industrial yield were documented well before the economy had to bear the brunt of the lockdown. According to the data released by the National Statistical Office, India’s economic growth decelerated to 11-year low of 4.2% in 2019-2020.
Almost every key sector barring agriculture - which grew by a decent 3.4%; showed a contraction in the first quarter of FY20 - be it manufacturing, construction, telecom, or the mining industry. The GDP growth has been on a downward slope since 2017 as shown in the graph below.
Source: India GDP growth rate 1961-2020
There has been a spike in India’s unemployment rate ever since the pandemic hit the nation. The panic induced by COVID-19 coupled with the strict lockdown led to a large scale lay off, across sectors. The unemployment rate peaked in the months of April and May (highlighted in the graph below) when the lockdown was being enforced severely but, as India tries to restore economic activity in a phased manner; there has been a significant growth in employment opportunities.
Source: Unemployment Rate in India
How can startups combat this economic slowdown during the pandemic?
Amidst falling GDP and rising unemployment rates, there is a silver lining in sight for aspiring entrepreneurs. India’s startup landscape has seen major activity in the last decade including the founding of new startups, influx of global investors, development of regulatory infrastructure, global mergers and acquisitions, and internationalization.
Ever since the pandemic hit India, entrepreneurs have had to scramble for funding and regulate the residual cash flow. The lockdown took a toll on the logistics and operations of startups but despite that, several businesses managed to score funding from investors during this time. This is a testament to the belief that investors have in the Indian startup story - it is here to stay, scale up and expand.
Technology has revolutionized the way of conducting operations across sectors. Today, entrepreneurs have several processes and tools at their disposal such as Internet of Things (IoT), blockchain and Artificial Intelligence (AI). This will facilitate businesses to revamp old school economics by digitizing every single business process including sales, customer experience, payments, procuring inventory and the end-to-end supply chain.
Using SaaS platforms to your advantage
Startups are being forced to lay off their employees to meet the piling costs and shortage in sales due to the pandemic. By making use of Software-as-a-Service (Saas) platforms, they can cut back on the cost of hiring more employees. Several Saas platforms serve as a replacement to skilled employees owing to the variety of services that are available.
During times like these, it is crucial for startups to adopt a bootstrapping approach which can easily be achieved by making use of SaaS products as a service. They offer services in key categories that are crucial in building and running a startup successfully.
Restructuring businesses to adapt to the changing time
The widespread uncertainty among investors, consumer hysteria and the disruption of supply-chain has thrown a fresh set of challenges towards entrepreneurs. Startups which make use of technology to their advantage and swiftly restructure the business model to suit the current needs of a consumer will emerge from the pandemic with minimal damage.
The service sector alone contributes a whopping 53% to India’s GDP so it is the perfect space for startups to create innovative products/services that could propel the country’s GDP growth rate while boosting the startup generated revenue.
Working from home to ensure employee safety during the pandemic
The safety of consumers and employees is currently at stake along with the economic health of individual businesses. While ensuring that their health and safety are not compromised in any way, entrepreneurs must also devise business plans that can combat the setbacks that the economic slowdown has brought upon them.
Employees must be urged to work from the safety of their home. This practice will also help in regulating additional costs that an office space might incur in the form of electricity and utility bills.
Key takeaways -
1. Businesses should utilize tech such as SaaS platforms to replace workforce, thereby cutting down on costs
2. The pandemic has left several gaps in various sectors which have in turn created a great scope for innovation
3. Startups must focus on streamlining their business models to suit the current economic landscape
4. Practices like working from home should be adopted to suit the “new normal”
To survive these difficult times and ensure that the economy thrives, policymakers have been focusing on reviving sectors by introducing flagship incentives and schemes. There is a storm brewing in the economic landscape of India, and the only way to weather it, is by empowering startups and small businesses.
The average age of India’s skilled workforce is estimated to touch a median age of 28 years by 2022 - the potential of startups to create employment opportunities is one of the most fundamental takeaways from any discourse on the economic growth of our nation.