India’s festive season, which starts from nine-day Navrati and lasts till year-end, is a lifeline for small businesses and startups, especially after the COVID-19 headwinds. Ever since the pandemic in February, there had been negligible or zero business activity for the sellers.
This year, startups from many categories conducted only 30% to 50% of their annual business. Companies need to pull all the stops to recover from this mojo since the business is slower than usual because of the pandemic. They are now approaching the festive season to develop branding units, merchandise designs, and ad campaigns.
The Indian Government has also started several moves to assess the pandemic impact on its economy and GDP contraction.
The RBI, Reserve Bank of India, has also projected that the Indian economy would contract 9.5% in the current financial year. Simultaneously, the World Bank and IMF, the International Monetary Fund, have estimated the contraction at 9.6% and 10.3%, respectively.
Last month, Nirmala Sitharaman, the Finance Minister of India, announced the cash payment in place of LTC and 10,000 INR festival advance to the government employees to stimulate the consumer demand during the festive season and give a boost to the economy.
She had also announced additional capital spending, and 12,000 crore INR, 50-year interest-free loan to boost the economy gashed because of the pandemic and resultant lockdown.
In May, the Government has also announced an Aatmanirbhar Bharat stimulus package worth 20 lakh crore INR. It was aimed to push ahead and boost the economy with a full opening ahead of the high-spending festival season.
It is worth highlighting that India’s economy contracted by a record of 23.9% from April to June because of the inebriating lockdown to halt coronavirus spread.
Recovery of Indian Startup Ecosystem Post Lockdown
This year has been dreadful for businesses as the pandemic took a massive toll on the Indian startup ecosystem. In 2020, the startups observed numerous layoffs, pay cuts, and shutting down of operations.
From Match to June 2020, more than 40% of startups were negatively impacted, and over 15% of the country’s startups were forced to discontinue their operations, according to a report.
The report also highlighted that the previous year was an all-time high for Indian startups, with the country becoming the 3rd largest startup ecosystem across the world. Till January 1, 2020, the country had 26 unicorns and 14.5 billion USD fundings.
The report of Delhi-NCR and Zinnov, “COVID-19 and Antifragility of Indian Startup Ecosystem,” revealed that there is a fall in overall funding by 50% during the lockdown compared to pre-COVID levels.
“The decline was even more prominent in seed and early-stage investments. There had been a 48% YoY decline in funding by CY Q2 and a 37% decline in the number of deals in CY Q2. The Industry saw a more than 55% YoY decline in seed and early-stage funding in CY Q2 2020 and a 38% YoY decline in funding in early-stage startups. Similarly, we saw a significant decline in late-stage funding also.”
– Rajan Anandan, President of TiE Delhi-NCR and Sequoia Capital India MD (1).
However, the startup ecosystem observed gradual recovery from September, and at present, most segments appear to have recovered to pre-COVID levels.
As per the report, the shift to digital consumption offered the required tailwind to sectors like healthcare education and commerce. Whereas, several sectors such as hospitality, mobility, travel, the most negativity impacted spaces are now on their path towards recovery.
The report highlighted that over 75% of startups are recovering gingerly post lockdown. Nearly 30% of startups have pivoted to a newer market for alternative revenue streams. Simultaneously, more than 55% of startups are focusing on reducing cash burn and increasing profitability.
During the quarter ended in September 2020, pre-COVID levels deal activity in total investments and the number of unique funded startups. It is interesting to know that four Indian startups have entered the Unicorn status in the pandemic, and India is expected to have eight unicorns by the end of 2020.
The reports showed the factors that helped with the resurrection of the economy and a pickup in M&A activity. It also highlighted the funding in the seed as well as late-stage.
In quarter three, the Indian startup ecosystem indicated positive recovery signs, with funding reverting to 98% of Q1, pre-COVID levels.
“It is very heartening to see several sectors getting back the pre-COVID levels. In the health sector- teleconsultation has seen the highest growth during this period. Meanwhile, other sectors have pivoted to survive during this time. Travel and hospitality will still take time to revive. We are almost at the end of the lockdown, and I believe this is the time for these sectors to catch up.”
– Anil Agrawal, Joint Secretary, Department for Promotion of Industry and Industrial Trade, Ministry of Commerce and Industry, Government of India. (2)
India Turning Digital Amid Pandemic
The outbreak of novel coronavirus and the resultant lockdown in India has made technology a necessity. As we adapt to the new normal, digitization has emerged as one of the key pillars to support individuals, businesses, and communities’ requirements.
The consumption and production scenarios are evolving; the ecommerce now has to balance supporting product value-chains, boosting economic growth, and driving underlying demand.
The ecommerce sector has a domino growth effect on several other spaces, including logistics, data analytics, digital payments, and warehousing. The sudden pandemic has introduced a new way of thinking, thus, encouraging innovation across sectors.
It is worth noting that digitization is not only reforming a company or an industry. However, it is a close interplay among industries to increase efficiency and values. It is also an integral of e-commerce, considering its impact and reach; space is also a preferred channel to connect with customers and the local MSME ecosystem across India.
There is no denying that MSMEs are the growth drivers of the country’s economy. Moreover, the Prime Minister of India, Narendra Modi, ensured that they continue to lead India towards economic growth via announcing several strategic measures. It also includes those under the “Aatma Nirbhar Bharat” initiative.
Along with the measure, it is an opportunity for MSME to capitalize on technology and enhance the use of e-commerce to achieve efficiencies and resource optimization. Moreover, MSMEs and sellers can also take the opportunity to clear up the inventory by cantering to pan India via ecommerce.
Small sellers and manufacturers can expedite the Indian economy’s recovery process by leveraging online channels for market access and liquidity.
In the past few months, many MSMEs have transitioned them towards ecommerce and digitization. The top states where local firms and companies have shown maximum interest in taking their businesses online include Maharashtra, Tamil Nadu, Uttar Pradesh, and West Bengal.
Because of the current sentiment towards digital transformation and e-commerce, more than 70% of sellers on Flipkart came from Tier II and III cities. Moreover, the online channels have also helped to transform and stimulate the unique handicraft Indian ecosystem.
Pent Up Demand
There is a significant surge in demand in the ecosystem, especially from Tier II and II cities that can be pushed up via e-commerce. Notably, one of the hallmarks of Indian e-commerce is to give access to a wide selection of quality products at affordable prices. It also attributes towards pulling a new set of buyers towards online purchases, especially Tier II and III towns.
After the successful connection in more than 600,000 villages in India with an optical fiber network in the next 1000 days, announced by the Prime Minister, Narendra Modi, a new set of customers would join e-commerce platforms to buy quality products at affordable prices.
E-commerce and sellers leverage the opportunity by focusing on vernacular language interface and voice on the platform to boost a large number of consumers significantly in Tier II and III towns. It would also bring new growth opportunities for millions of sellers and MSMEs in India.
The lockdown has changed people’s buying habits while observing the fact that the trust in buying via ecommerce is increasing across generations. There are drastic expansion and evolution in the demographic profile of online consumers. It is especially true since people are considering the social distancing norms of the COVID-19 outbreak.
All sections of consumers, from Gen Z to baby boomers, all consumer sections are actively looking at digital middles for goods and services. A Goldman Sachs report indicates that Indian ecommerce is likely to register more than 18% growth in the current financial year, about 33% in 2021, and 28% in 2022.
COVID-hit small business owners are pleasantly surprised during the festive seasons as most online shoppers looked at them for purchase, including emerging artisans and brands.
Startups Relying on Tier II and III India for Recovery
As the internet’s penetration is improving in India, ecommerce companies are observing new customers from Tier II, Tier III cities, and beyond.
“COVID-19 has changed consumption patterns. Many first-time users in Tier II and III cities are coming online and becoming comfortable shopping across all categories. Festive seasons until now have seen several consumers from Tier II and III India, but this time the stickiness of these consumers will be stronger.”
– Mrigank Gutgutia, Redseer Director (3).
According to a report by Unicommerce, the overall demand is gradually shifting towards Tier II and beyond cities across India. They contribute about two-thirds of India’s total online consumer demand, and the share is likely to rise in the coming years.
The festive season is likely to spike across different kinds of categories in Tier II and III cities and not only in fashion and electronics. People are also likely to purchase in categories like furniture, unheard of previously.
People are now more comfortable shopping online, and they are more likely to take advantage of discounts and offers during the festive season.
Another key factor that contributes to the development is a push of Indian languages. Moreover, delivery firms are working in ways with brands to ensure that orders reach on time, and it has made it easy to adapt to ecommerce.
Several analysts also believe that the shift may also be due to the reverse migration. Many young working Indians have moved back to their home towns from metro cities and are working there. They are used to the online shopping convenience and also know the advantages. They have now introduced the same behavior to their peers and families.
COVID-19 is here to stand, and so are the changes in behavior.
India Embarking Towards Major Economic Activities
When ecommerce has an enabling and conducive environment, it could have a compounding impact on several other sectors such as logistics, data analytics, warehousing, and digital payments. Such completing service providers are moving towards villages and small towns and can offer huge employment opportunities in these functions.
They would also offer the potential for locally developed technology to solve India’s unique problems and help grow an efficient and inclusive ecosystem. It includes enabling language interface to get consumers comfortable in their online journey and technology to develop supply chain solutions to digitize local MSMEs.
There is an enormous opportunity for the logistics sector to digitize the Indian supply chain via the state of the local art technology. It would help the sector build a more efficient, transparent, and resilient supply chain to support the ongoing transformation in the manufacturing and agriculture ecosystem. It would result in boosting the key initiatives like Make in India and Doubling Farmer’s Income.
Notably, India is gradually towards major economic activities after several stages of lockdown and unlocks. At the same time, the pandemic has affected everything and everyone directly or indirectly. However, the most affected ones need prudent measures to kick start.
Boost in Ad Spends by Brands
On the back of a progressive increase in consumer demand, live sports, such as IPL or the Indian Premier League, and fresh content, the festive advertising from brands across categories are returning on the television.
According to the top media buyers of advertising agencies, it can touch as high as 25,000 crore INR between October and December. With the Diwali celebration in mid-November, the festive season is longer in 2020. Brands have a longer advertising window since the businesses and economy have started to open up after Unlock 4.
A 15% to 20% drop in the media spends between July to September in the current fiscal year. However, with IPL coinciding with the festive season, it is likely to drive festive spending with an increase in the ads’ investment across all categories. It includes auto, apparel, jewelry, consumer durables, FMCG, fast-moving consumer goods, startups, and ecommerce.
“Under the Unlock 4 guidelines, opening up businesses and services is for real now except for probably movie theatres. Therefore, normalcy is beginning to return. I expect October to be heavy in terms of festive ad spends, which may touch 25,000 crore INR in the best-case scenario in the last quarter of this year,” – Navin Khemka, MediaCom CEO, South Asia (4).
It’s noteworthy that 2020’s festive season is most important for all the businesses, especially for the auto industry, as customers are looking for big-ticket purchases post lockdown. Despite the slowdown because of the pandemic, this year’s festive season has already begun on a positive note.
Several brands are looking forward to the festive season and building customer loyalty programs via festive promotions and campaigns. Simultaneously, several brands are also restraining their spending as they are still facing challenges with supply chain, imports, and labor shortages. Consequently, they may not produce in full capacity, and advertising when you cannot meet the demand is a tricky scenario.
200 Special Trains for Festive Season
Indian Railways has started 200 special trains amid the festive season because of the rush, leading to unprecedented gridlock. These special trains started between October 15 to November 30 to attend the passengers in the festive season.
VK Yadav, the Chairman and CEO of Railway Board, claim that Indian Railways have decided to carry passenger services during the festive season daily, depending on the state governments need and pandemic status.
At present, the Indian Railways are operating 230 special trains that will continue their operation and the new train.
Notably, after the relaxation of the lockdown norms, the railway started over 30 Rajdhani type trains and added more than 200 trains since June 1. Indian Railways has operated a total of 4,165 Shramik Special trains between May 1 to July 9. It transported more than 63 lakh migrant workers and stranded people to their home towns amid the pandemic.
Record Auto Sales in Festive Season
The leading car manufacturers of India are set to record sales in this festive season. Sales of cars, sport utility vehicles, and sedans were on an all-time high last month on continued demand for personal mobility solutions and healthy offtake in provincial areas.
Dealerships have to build healthy inventory anticipating high sales during Navratri, Dussehra, and Diwali. According to the estimate of Industry, more than 333,700 passenger vehicles were sold in October. It has observed a 17% hike from the 285,047 units last year in the same period.
Previously, the recorded highest ever wholesale of the cars, 310,047 units, was in September 2017, according to the data from Indian Automobile Manufacturers’ industry body society.
“October has been our best month so far since March. The festive season has proved to be bullish as we witness demand surging, month on month…The fact that our wholesales have been registering an average growth of close to 50% every month gives us confidence that the demand for bigger vehicles is rising too, with both the Innova Crysta and the Fortuner clocking good figures compared to earlier months.”
– Naveen Soni, Senior Vice President, Sales, and Service of Toyota Kirloskar Motor. (5)
New Milestone Hit By UPI Transactions
The digital payment system sanctioned by the Indian Government, UPI, or Unified Payments Interface, reached a new high in October. It has reached a high of 2.07 billion transactions worth 3,86,106 crore INR after breaching the 1 billion transaction market in the first 15 days of October 2020.
It is the highest ever since the payment system came into existence in 2016. Last month recorded more than 1.8 billion transactions in total.
Notably, in April 2020, UPI’s monthly transaction volume had dropped below the 1 billion mark. However, it has witnessed an upswing as people turned towards digital payments amid the novel coronavirus pandemic.
The NPCI, the National Payments Corporation of India, which developed and runs the UPI system, records a daily average volume of 6,75,00,000 UPI transactions.
In the coming year, the festive seasons would remain equally important. Despite the slowdown, Indian is making a strong comeback, as things are returning to normal, and consumers are now also focusing on purchasing during this period.
Offline recovery is weak since consumers are still uneasy about visiting high human touchpoints such as malls and retail outlets. However, the Jio may play a strong role in growing sales in smaller cities, a strong push towards Aatmanirbhar Bharat.
Reports suggest that unique online shoppers from Tier II and beyond cities is expected to grow to 170 million annually by 2023. Most companies are now also focusing on regional languages to attract more consumers and sellers. During the festive season sales, most brands have witnessed a maximum volume of orders from Tier II and III towns, boosting the country’s ecosystem.