, we are dealing with two viruses: a viral infection and a financial infection. Both must be addressed concurrently. The latter will have a long-term effect on the financial and mental health for generations to come. Consumer confidence is at an all-time low, with the average investor losing much of his or her wealth over the last month.
Then there’s massive layoffs, especially in the travel, food and beverage, and hospitality industries, looming. This will, in all likelihood, be further exemplified in the US government’s department of labour’s weekly ‘jobless claims’ report this Thursday.
Unemployment claims are reportedly expected to rise 10-fold in one week — after last week saw a surge to 281,000 from 211,000 the previous week, this 70,000 week-to-week spike being sharper than anything during the 2008 financial crisis or since.
The US needs to front-load much more than the initial $1 trillion stimulus. The domino effect is going to be felt quickly, and badly. The next 90 days will dictate whether or not the US heads toward a depression-like era where unemployment rose towards 25%-plus. Many companies will go bankrupt. Small-to-midsize startups and businesses will be the biggest victims in the short term. Unemployment will have a circular effect with cost of living, with real estate in the US likely to take the next hit.
India, on its part, has its own acute concerns. A nationwide lockdown for at least two weeks as announced by Prime Minister
on Tuesday evening to contain the spread is welcome and necessary. Now to up Covid-19 testing. The numbers the country has been testing so far has been one of the lowest per one million compared to other countries. One can only contain what one can ‘see’.
While Modi’s address on Tuesday was welcome, GoI now needs to immediately and simultaneously also focus on a financial stimulus. Denmark and Britain have already ‘frozen’ their economies and agreed to pay up to 80% of every citizen’s salary for the next three months and provide immediate working capital to small businesses.
The US has put forth an Economic Injury Disaster Loan programme for small businesses, capped at $2 million for each business. These loans will be forgiven as long as employers do not terminate their employees. India should adopt similar policies. The need for immediate capital has never been more dire.
If India still has the appetite and wherewithal to be a $5-trillion economy, capital measures need to be put in place immediately to provide a runway to businesses and citizens.
As for startups, they should conserve cash, cut salaries and expenses. Unfortunately, this means layoffs are inevitable. Outside of payroll, the biggest expense is the office. Renegotiate your lease, or ask for relief during this quarter. Cut costs everywhere if you want to keep the lights on. Figure out what it is minimally required to do so, and expect the toughest Q2 of your life.
Startups shouldn’t expect to be able to raise capital. Venture capitalists (VCs) will say they are open for business, but they are the most risk-averse class in town. I actually believe many investors who have invested in sky-high valuations will start asking for their money back.
Focus only on a path toward profitability, or change your business model to focus on how it can operate in a downturn economy. Think who your business and customers would have been in 2008 during the economic downturn, and operate accordingly.
Startups that are likely to suffer the most are direct-to-consumer (DTC) brands, and fintech — unless the model shows positive growth margins. Expect investors to push for companies to shut down and return capital.
Startup and small business owners should check their business insurance policies and see if they have any ‘business interruption insurance’. ‘Act of God’ or ‘Force Majeure’ clauses should apply to the
crisis. File a claim immediately, even as insurance companies will, in all likelihood, reject the claim at first.
In the last one week, the world has changed. If there was a time for ‘extreme’ measures, it is now. Keep the curfew intact. We are at war. You can clap your hands and bang on plates when you have won the war, not when you’re in it — and don’t even know the size of your enemy forces yet. The real test is the next 90 days. It will define how India can come out as a warrior by taking on both viral and financial infections head on.
P.S. We are seeing a lot of abuse, outrage and hatred in the form of racism and xenophobia on how the Chinese are to be blamed for this pandemic. I fear that a new era of ‘closet racists’ is forming, which will not be healthy in the short or long term when this crisis is over. This is not about race, but about humanity.
The writer is CEO, RedLotus
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
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