Will COVID-19 Change the Landscape of Financing Innovation in India?

The COVID-19 pandemic may affect the financing opportunities for innovation. The revenue loss induced by the pandemic is likely to divert the existing resources in aiding firm survival and economic recovery, with financing innovation taking the back seat. Highlighting the current state of innovation in the country, the rise of the country in its innovation ranking and its existing sources of funding is brought to the forefront. Various avenues presently exist for this purpose and more outlets could be explored to boost the funds for innovative efforts. Experience and policies of other emerging economies can help devise suitable measures that could further enhance India’s trajectory up the innovation ranking.

Views expressed are personal.

The COVID-19 pandemic has landed firms across the globe in an unfamiliar terrain. The COVID-19-induced crisis has raised endless challenges for firms trying to grapple with the supply disruptions and at the same time to secure their future. The past few months revealed the importance of innovation in tackling various facets of the pandemic ranging from search for vaccine and testing kits, adoption and availability of digital consumption for entertainment, education, e-commerce and mobility. Though the crisis has stimulated renewed interest in innovation as a means of overcoming the various disruptions created by the pandemic, concerns are being raised about the financing of such innovative activities.

In addition, the crisis has put enormous strain on public and private avenues for financing innovation. Further, faced with declining revenue, uncertainty induced by the pandemic may push banks and investors towards more risk-averse alternatives. This is likely to severely reduce the external sources of financing available to innovative firms leading to reduced expenditure in research and development (R&D). Since much of the outcomes of the innovation are in the form of creation of intangible assets, obtaining finance from capital markets, especially in developing economies, is difficult.