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What Can Stimulate India's Post-Pandemic Economic Recovery?

Hrishikesh Panditrao (TYBIM)

Thanks to a host of soonicorns, approximately 40 Indian startups have defied lockdown restrictions to become
Unicorns, with 33 of them coming in 2021 alone. A unicorn is nothing but a privately held startup that is valued at $1
billion or more. At a time when the Public sector banks are running in losses, thereby being unable to fund Indian
businesses because of which 38% of Indian businesses have closed down, Indian startups have accomplished
something gargantuan in an economic depression. Despite India lacking an information infrastructure of venture
capitalists, it is striking to see unicorns emerging in diversified sectors, with most of them being in the fin-tech
space, software, and ed-tech industry respectively. However, most Indian businesses look up to banks, to become
decacorns (valuation more than $10 Billion) or hectacorns (valuation more than $100 Billion). As of 18th of
October 2021, India has three new-age decacorns: Paytm, OYO, and Byju's, with all hectacorns being founded
centuries ago. However, the difference between the developed economies and the emerging ones is not just of
access, skill development, manpower and life expectancy, but also the size of their banking industry as I explain
ahead. The numerous obstacles SMEs face in borrowing from banks requires supervision, not suspicion. Simple
economic tasks having gargantuan obstacles can tilt scales on whether a business is worthwhile to start or grow at a
particular stage. According to the International Finance Corporation (IFC), in developed markets like Europe and
the United States, the regional, cooperative, local, community-focused banks (they do not include NBFCs)
typically serve local businesses, provide loans to a third of all SMEs. This figure is a tiny 6% in India.

In 2017, the IFC concluded that of the total supply of credit to SMEs and micro-enterprises, a gargantuan 84% of the
approximately $1 trillion credit provided to all MSMEs came from informal sources like money lending, self-
financing, loans from friends and family. The rest was from formal sources like Banks, NBFCs, Government
Financial Institutions. Public Sector Banks (PSUs) provided a credit of $77 Billion, which is approximately half of
all the formal credit to MSMEs in India. However, as is seen in the banking industry in India contemporarily, even
this minute number is expected to drop as 12% of all the loans provided by PSUs were Non-Performing Assets
(NPAs) and had to be written down. Unsurprisingly, this has led to caution in the banking industry. According to
renowned economists and investors across the globe, one of the major reasons behind the success of East Asian
growth stories was that Japan, Taiwan, and South Korea set up fair systems for selling public land. India needs to
implement such land acquisition reforms immediately if it wants to catch up with other countries like Vietnam,
Indonesia, South Korea, and Bangladesh in the race to be the next big thing in the economic world and leverage its
industrial output. Apart from getting more investments and well-equipped technology, land acquisition reforms
also offer a viable solution to crony capitalism in the country. Some politicians often support businessmen with
vested interests that have caused rampant income inequality in India. In other words, Land acquisition reforms are
considered paramount for an emerging economy, irrespective of its size. Fair systems of selling public land across
the world have not just enabled entrepreneurs and investors to get profits according to their merit but also helped the
political economy to remain under control.

However, these businesses will not just require an adequate supply of funds, but also a highly skilled labor force.
One of the ways India can right the talent mismatch is by focusing on its secondary educated workforce. These

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