India's mid-market has been swift to prepare for recovery
After a grueling spell from an economic standpoint, most mid-market firms in India have positioned their businesses well for the next 12 months. This is according to a new Grant Thornton study.
Grant Thornton’s analysis of the Indian mid-market is part of its International Business Report (IBR), which surveyed 5,000 businesses across nearly 30 countries to understand the global outlook amid an economic crisis of sorts. More than 260 of these businesses were Indian, and many appear to be optimistic when compared to their global counterparts.
In fact, Grant Thornton reports that nearly two thirds of Indian mid-market businesses expect an increase in both their turnover and their profitability going forward. Vishesh C Chandiok, CEO of Grant Thornton, elaborated: “The survey shows that 58% of Indian mid-market leaders expect to increase turnover and 56% expect to increase profitability in the next 12 months.”
This optimism stems from preparedness. No doubt, India has had its share of challenges during the crisis. Reports from just last week suggest that the economy has already contracted by nearly 25% since the start of the pandemic. The figures are fairly high even from a global perspective, with the global economy expected to contract by between 5% and 10% by the end of this year.
Governments across the world have been in damage control mode as a result, responding with liquidity injections and stimulus packages. In India, a stimulus package to the tune of Rs. 20 lakh crores – 10% of the GDP – was launched back in May, spreading benefits across land, labour, liquidity and regulations.
The measures have helped businesses keep a relatively positive outlook on the economy. To some extent, the levels of contraction in India were already expected. Back in June, McKinsey India Managing Director Gautam Kumra expressed that he had “horrendous” expectations from the first two quarters of 2020, anticipating a contraction of up to 25%.
No surprise then that most of India's mid-market has prepared for these circumstances. Business continuity was the reflex priority for many, and Grant Thornton’s survey found a notable degree of agility displayed in immediate response to the pandemic. The transition to virtual working arrangements was almost immediate, which ensured that operations remained up and running.
Then came the time to plan a more in-depth response, and Grant Thornton found that more than half of all mid-market businesses in India have already adjusted their business strategy. Half have changed their working patterns, and a similar figure has prepared or implemented plans to deal with flailing supply and demand.
Other immediate focus areas in business response have been revisions to the budget and investment plans, reduced capacity and, of course, cost cutting in the form of lay offs and reduced hours. Speed of response aside, Grant Thornton reports that businesses have also devised their forward-looking plans.
While the first six months of 2020 have been really testing, this has given an opportunity for businesses to innovate and look beyond the normal,” said Said Siddhartha Nigam, National Managing Partner of Growth Advisory at Grant Thornton.
Strategies for the new normal
“The Covid-19 pandemic has ushered in a ‘new normal’ and business models also need to evolve. Indian mid-market firms are planning to make specific changes to their business strategies after Covid-19,” states the report, which was co-authored by Grant Thornton experts Kartikay Sharma and Meghna Mathur.
Changes range from practical considerations such as workplace safety and resource reallocation all the way to managing new consumer priorities by engaging with new markets and offering new products. This set of changes is already underway, while many plan to make more structural changes once the pandemic has blown over completely, leveraging lessons learned from the crisis.
Digital transformation is one. Perhaps the central realisation for many businesses during the crisis has been that the world is more reliant than ever on digital channels. Digitalisation was already the key to staying competitive, a trend that has only intensified at this point. Other plans have to do with improving business resilience.
Businesses plan to improve the flexibility of their operations and tweak their crisis management mechanisms, so as to not be caught out by unforeseen circumstances in the future. Cutting across the immediate and the future planning agendas is supply chain reorganisation – something that is aimed at business continuity for one, but also at capitalising on new opportunities.
As China becomes an increasingly high-risk market – noting trade wars and pandemics – many have highlighted the opportunity for India to draw some of the investments that are seeking lower risk economies. According to Grant Thornton, Indian businesses have been moving quickly to fill the gap.
“To take advantage of decreasing dependencies on China for production of electronics, India recently launched multiple programmes to attract mobile and electronic manufacturers set-up operations. Similar trends are likely in the pharma sector, where India can leverage the already established contract manufacturing facilities in various parts of the country,” states the report.
