Worsening business environment suffocating Indian startups
Published: Jan 11, 2021 08:18 PM

Illustration: Xia Qing/GT

With the coronavirus pandemic ripping across the world, 2020 was an extremely tough year for global businesses, especially the startups. India has been particularly hard hit, with venture capital going to local startups dipping 34 percent year-on-year in 2020, dropping from previous year's $14.2 billion to $9.3 billion, according to industrial analysis platform KrASIA.

Behind the US, the South Asian country has ranked second in confirmed COVID-19 caseloads with infections exceeding 10 million now. However, the virus is not the only culprit of the declining financing for Indian startups.

For starters, the Indian economy was already in a spiraling downward, even before the pandemic hit. The country's GDP growth in July-September quarter in 2019 was recorded at merely 4.5 percent, the sixth consecutive quarter to register declining growth rates, Indian media reported.

As the once-in-a-century health crisis continues to cause havoc, India is likely to be one of the hardest hit Asian economies. Per IMF estimation in October, Indian GDP in financial 2020-21 was set to contract by more than 10 percent, far worse than the general 1.7 contraction of the overall Asian emerging economies.

New Delhi, however, recklessly chose a path of antagonizing China, from ratcheting up border disputes to economic frictions. For instance, the Modi administration, under the disguise of protecting the country's national security, banned over 200 Chinese apps.

Facing a grave crisis which has severely dampened the world's fifth largest economy, New Delhi chose to further undermine its business environment and tried to squeeze one of its major investors out of the country.

Chinese capital has accelerated inflow to the Indian market, especially in the internet sector.

Chinese internet enterprises have developed rapidly in recent years, taking lead in many areas, including mobile payments and e-commerce, in the world. However, as Chinese capital has been flushed out of the Indian market, it is inevitable that there would be a declining financing for Indian startups, though there have been Western investors intending to seize the advantage to take over the market share.

It is true that India has developed a growing connection with global internet industry thanks to its competitive international call centers, and a few Indian elites managing global internet giants. While the key issue is still the business environment of the country which has struggled with weak infrastructure, less-skilled labor and unsound land system are to blame too.

Even with COVID-19 vaccines gradually being rolled out, global market tends to maintain a conservative attitude toward when the crisis will end, and how hard the global economy will be battered. Under such circumstances, cutting a major financing resource and a leading industrial player out of the picture is bad news for Indian startups, and will act as a handbrake for its emerging industry development.

The article was compiled based on an interview with Liu Xiaoxue, an associate research fellow at the National Institute of International Strategy under the Chinese Academy of Social Sciences.

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