How Epidemic-led Financial Crisis Arisen New Companies

Every financial crisis has taught vital lessons to economies across the world. Considering the first global financial crisis of the 21th century--2007-08 Financial Crisis, turbulence was seen everywhere. However, amid such mayhem, individuals and companies recognised how bad debt can crumble down a business ecosystem. On a similar note, the 2020-21 financial crisis has given realisations about how businesses dealing in essential items cannot go out of the business. 

Such observations emphasize the economic theory of creative destruction. Under the creative destruction concept, out-of-date trends or practices are discontinued and new ones emerge. According to the Dun & Bradstreet report, business dynamism can perhaps be described as the velocity at which creative destruction takes place. It can be measured as the rate at which new businesses enter a market and the rate at which existing ones exit. In the present context, business dynamism resonates with the influx of emerging businesses in the Indian sector. 

A Spike in New Businesses 

Over the last year, when the pandemic spread in every corner of the world, business economies were ruined. A few industries managed to survive and also, shore up in the sector. However, surprisingly, the particular sector saw the rise of new businesses as well. The D&B’s report stated that the birth rate of new businesses (number of new businesses registered as a percentage of active firms) showed a healthy pace of increase from 10.2 per cent in FY20 to 11.6 per cent in FY21, despite the pandemic and subsequent waves of lockdown. The increase is significant given that there were fewer firms that went out of business in FY21 compared to FY20 – 12,924 vs 75,408. A total of 195,880 businesses were registered in FY21 compared to 158,442 businesses in FY20, growing at 24 per cent. 

Sectors Alluring New Entrepreneurs 

Trends changed drastically in the past year. The global epidemic followed by its impact on the businesses, the needs of consumers reduced limiting to basic amenities only. Agriculture sector in India witnessed the highest count of business registrations. The sector observed 12,368 (business) registrations in FY21 compared to 6,107 in FY20, an increase of 6,261 firms or a growth rate of 103 per cent. 

Following this, the manufacturing sector experienced 39,539 registrations in FY21 compared to 26,406 in FY20, an increase of 13,133 firms or a growth rate of 50 per cent. The services sector is third in the row with 83,079 business registrations in FY21 compared to 73,149 (business registration) in FY20, an increase of 9,930 firms or a growth rate of 14 per cent. 

Shift in Consumer and Business Minds 

There are various sectors that experienced a high growth in new registrations in FY21--agriculture production (crops), food and kindred products manufacturing, wholesale of non-durable goods, chemicals manufacturing, social services--to name a few. Higher registrations in these industries seems reasonable given that consumers restrict their expenditure to necessities and cut down on non-discretionary spending during economic downturns. The above-cited report informs that a good monsoon season could have provided further impetus. Higher registrations in chemicals manufacturing and social service (hospitals, nursing homes, trusts, etc.) are justified as these sectors are experiencing a pandemic induced spike in demand. Individuals also tend to reskill themselves to improve their future job prospects during recessions. 

These variations in the business ecosystem have been lately recognised. Consequences of the epidemic-led financial crisis will have a significant impact on the business in the offing. It is hoped that future consequences will arise new opportunities and bolster the Indian economy.