Neeraj Sahai, International President of Dun & Bradstreet, insists that India's strong technology ecosystem can support innovations and the development of new value propositions.
When there's economic uncertainty, there are a few things companies can do right now to make sure they are positioned to respond quickly and make decisions based on facts. Having full oversight of business relationships to assess potential impact on operations is key to managing risk and taking steps to limit the financial damage of the pandemic. Knowing how businesses you work with and rely on are impacted is critical to decision-making. Questions to consider include: Do you need to identify alternative suppliers Are your largest customers at risk of insolvency or bankruptcy Analysis of this type of data can be extremely valuable to inform current and future plans.
It's vital to work in an ethically and empathetic way during this situation, but that doesn't mean that businesses can't identify opportunities or look at creative new ways of working. COVID-19 will change the way we work and that will lead to emerging trends that necessitate a new approach for many companies. There may be new prospects in the market to target, and the requirements and strategy of existing customers may have changed. Having in-depth insight on existing and potential clients will be important to restart revenue generation and meet customer needs.
Business uncertainty can be triggered by anything from changes in regulation to trade disputes to natural disasters. Today, we are seeing the effects of COVID-19 resulting in major disruption to our personal lives, our businesses and the wider economy.
In most cases, the net result of uncertainty for most smaller businesses is usually the same: impacts to revenue and viability. Small and medium businesses are the lifeblood of economies around the world, making up the lion's share of private businesses and providing essential services to local communities. Their survival will be critical to the wide recovery following the outbreak of COVID-19. Being small enough to be more agile and responsive is a benefit SMEs can hone during the crisis. Being your own boss can be an advantage in that you can decide to implement and try out innovative new ideas relatively quickly compared to a larger organisation. We're already seeing independent businesses pivoting and adopting new business models such as restaurants doing deliveries, fitness classes moving online, in-person events being delivered via online webinars, and more focus on social media as a marketing channel. Using data effectively is also beneficial and can help entrepreneurs and small business owners to identify and evaluate potential new markets and customers and analyse the behaviour and financial health of their existing customers. Assessing the reliability of your supply chain and ensuring diversity of sources will also be essential as different countries and markets recover at different rates. As some countries start manufacturing and distributing again, it still might be hard to get the materials you need to remain operational. Even though you may desperately need to find a supplier, you'll want to make sure you're partnering with reliable, viable vendors.
Emerging markets have been experiencing unprecedented reversals in capital flows since the outbreak of COVID-19. This 'flight to safety' trend is likely to continue in the coming months given the reduction in investors' risk appetite. The UNCTAD (United Nations Conference on Trade and Development) estimates global Foreign Direct Investment will decline by up to 40 percent during 2020 and 2021. The pandemic is also likely to reshape the framework in which investment policies are prepared. Countries will move quickly to protect their strategic industries and supply chain. UNCTAD has suggested that COVID-19 will lead to a significant -30 to -40 percent contraction in cross border financial transactions (FDIs) and global capital flows.
UNCTAD's latest Investment Policy Monitor forecasts that the coronavirus pandemic will have long-term effects on investment policy making. It's likely that there will be restrictions on foreign investment in sectors that are deemed to be of critical importance to the domestic market. Conversely, competition may increase for investment in other industries as many businesses look to restart, and the economic recovery begins in earnest. Forecasts also suggest that the crisis may also increase demand for web-based, online approvals for investors in line with social distancing and the likely continuation of working-from-home arrangements. Dun & Bradstreet's Global Business Impact score is at a record high, indicating that the outlook for cross-border businesses is at its worst level since the index was introduced in 2014. The score is based on the analysis of the top ten threats to business and our most recent outlook for Q2, 2020 (due to be published shortly) lists the failure of global equity valuations to recover post-COVID as a key risk, in addition to the deteriorating fiscal positions that could undermine global business opportunities.
Growth in India over recent years has become more moderate, largely driven by multiple structural reforms like demonetisation, implementation of the Goods and Services Tax (GST). However, there were signs of green shoots in the economy during December 2019 and January 2020 and India's growth forecast was positive for this year, with growth expected to climb.
Since the pandemic gathered momentum in early March 2020, India's GDP growth forecast has fallen, with Dun & Bradstreet predicting just 0.1 - 0.2% growth, down from our previous estimate of 5% for the 2020 financial year. The outbreak of COVID-19 has led to major supply chain disruption and reduction in demand, and our most recent Business Optimism Index for Q2 has seen the lowest level of optimism among respondents on record. More positively, it's likely India will still be the fastest growing major economy in the world, provided the COVID-19 pandemic can be effectively contained. Whether the economy can weather the storm will be dependent on factors such as the proactive measures taken by the Government of India and other economies, and the lifting of lockdown measures.
According to the World Bank, India's credit-to-GDP level stands at 51%, which indicates low credit penetration despite a Gross Domestic Savings rate of around 30% of GDP. India has developed a strong technology ecosystem and combined with the significant amount of data held by financial institutions, this can support innovation and the development of new value propositions. There is significant opportunity to identify and deliver value using data and analytics in the retail credit space.
The recent merger of public sector banks also presents an opportunity to strengthen governance and risk management. Establishing a public credit registry and adopting Early Warning Systems can help reduce the level of 'bad' loans and when complemented by deepening of the capital markets, this could help reduce the asset-liability mismatch in the financial sector. In relation to COVID-19, the regulatory and compliance measures already announced by the Finance Minister across areas such as Income Tax, Goods and Service Tax (GST), customs, Insolvency and Bankruptcy Code (IBC) are providing support for businesses. Other measures could include restructuring of debt and the relaxing of rules around access to finance and capital. Government financial relief could be offered to help banks and other financial institutions to strengthen capital and increase liquidity, but given that India has limited fiscal resources, the Reserve Bank of India (RBI) would likely need to step in to support such relief schemes.
As one of the world's fastest-growing economies, India continues to be a strategically important market for many global and international businesses. Dun & Bradstreet marked 25 years of operating in India this month and it remains a key market for our international business, with around 700 people employed directly or as contract resources across several office locations. We have recently launched a number of global solutions in the market, including credit risk intelligence platform, D&B Credit, online compliance tool D&B Onboard, and sales acceleration solution, D&B Hoovers.
Recent analysis conducted by Dun & Bradstreet's economists in India have rated the likely impact and recovery period for each main sector in the Indian market. The current lockdown has led to lower demand and muted non-discretionary spending for non-essential items. The worst hit sectors in India are gems and jewellery, entertainment, hospitality, transport, tourism and livestock, where recovery is expected to take up to, or more than 12 months. The tourism sector is expected to have foregone revenues of around Rs 350 bn from foreign tourists alone during the months of March and April. The drugs and pharmaceuticals sector is one of the few to have experienced a moderate impact, and production is expected to recover quickly as the government is extending support for essential commodities. Also, China accounts for around 85% of India′s active pharmaceutical ingredients imports and the Chinese market is starting to move towards normal operations. This alleviates the supply chain disruptions, though not by a great extent.
In terms of the Micro, Small and Medium Enterprises (MSMEs), analysis of Dun & Bradstreet trade data indicated that only around half of large companies in India pay their suppliers on time. This challenge is likely to only be exacerbated by the current situation. A slowdown in demand due to the outbreak of COVID-19 may also force large companies to scale down their production, which will have a knock-on effect on MSMEs. The ensuing cashflow disruptions are likely to lead to additional delays to and could potentially trigger an increase in credit defaults and permanent business closures of highly leveraged MSMEs. Polls conducted by Dun & Bradstreet India have shown that 42% of professionals believe that it would take four to six months for their company's revenue to rebound to pre-COVID-19 levels. Thirty percent of the respondents, however, think that their business would take seven to 12 months for recovery. Seventeen percent believe they can bounce back in one to three months whereas 12% believe that it would take more than a year for them to get back on their feet.
COVID-19 has exposed the over dependency of many global companies on China, prompting them to consider supply chain diversification and look for alternative supply sources in other countries. This presents an opportunity to many other markets, including India, to increase manufacturing production and output to meet this increased demand. Cost competitiveness and a huge domestic market make India an attractive destination for business relocation or as a source of supply. However, much depends on the attractiveness of the incentive packages that the central and state governments are likely to roll out following the lockdown period.