While I’m not a domain expert in this area, based on the available research, thoughtfulness and intuitiveness, I have attempted to bring this piece of writing for all readers.
A. How value is created to drive the economy?
Imagine that you own a candy shop and you have one assistant that helps you make candies. You set a MRP of ₹5 per candy(or you can assume $5). After deduction of every fixed and variable cost (*expect the salary of the assistant), you make a profit of ₹1.5 on each candy. If you sell 100 candies a day, everyday you are saving yourself ₹150. This totals a sum of ₹4500 per month (considering 30 days work schedule). At the end of the month, if you pay ₹1500 to the assistant, you are left with ₹3000 for your personal expenses. If you manage your personal expenses at ₹2500, you save ₹500 each month which is the value your business generates for you.
B. How businesses are going to be impacted by pandemic?
In this lockdown, businesses are shut down and there is little or no revenues at all. In the above scenario, if the business is not able to operate, survival is possible only from the savings. The fixed costs mostly drag the businesses down when the revenues are limited.
In the case of candy business, let's assume you are still in operation but the consumption has dropped down to 50%. Hence, the total amount you are left with per month is ₹2250 and after paying your assistant 50% of the salary i.e. ₹750, you are left with ₹1500 for your personal expenses. If the personal expenses are manageable within this amount then the assistant might stay. However, if it’s impossible to afford an assistant, then you might lay off the person and save that expenses as well for your own survival.
This is the current scenario we are observing in the markSet. Many people have lost their jobs during such uncertainties and the economy is performing at a very low level of output.
C. How startups are going to be impacted?
Looking at the state of startup operations, I feel that most startups won’t survive this lockdown to come out on the other side of the post-pandemic state. As many such startups are based on fixed investments and loans, everyday will be a battle to make a survival. Also, the market has shrinked in such a way that it will be tough to sell any product. Investors are likely to turn away from putting any additional money unless they have a high level of confidence.
There will be some startups that will continue to work despite all the hardships and prepare themselves for the opportunity that will arise post-pandemic. Such startups might sustain to form giant companies who understand the market crisis and bring solutions that are effective and long-lasting. It depends on the leadership that is capable of crisis management and making highly intuitive decisions.
D. How life is going to be impacted?
Everyday life is already impacted for people world-wide and the more drop in businesses and jobs will be seen, the more panic it will create among people. Investors are likely to hold back investment in any new ventures to help survive the existing companies on their portfolio. Any small business owner or their employees are going to be largely impacted with little or no savings. People will count on fixed assets to neutralize the situation (mostly business owners). As a result, when there are more and more similar assets on sale, prices are going to drop dramatically (considering the economic phenomenon- more supply quantity, decrease in price of goods as bargaining power shifts to buyers).
Since the economy will not come back to track instantly, crimes and untrust over government can increase. People will have less faith in the economic system and many people will suffer depression.
E. Will new business giants rise post economic depression?
Yes, new businesses may be seen arising post economic depression. History shows that after each economic depression, new giants evolve as they are able to solve old problems in a better way. Also, a crisis leads to minimization of resources. Those who seem to optimize and manage resources in a good way will raise post depression but it’s really hard to pick a certain sector in the market as it all depends on how they are prepared for combating this or any crisis situation.
F. Can governments collapse during economic depression?
It is rare to expect the collapse of the government. Government can cut development activities to never let it collapse. There are always businesses in a country who do well in all situations and they employ people who won’t have a problem paying regular taxes. Government owns pot which always yields pudding and it’s just that they can prioritize expenses of highest importance.
Let me end with a classical humor:
We offer everything to god as we clearly know nothing is going to disappear but what if god suddenly decides to take everything offered (nothing in return), how long will people love god and continue to offer?
Whatever is invested during these times, will burn away and hardly show a sign of returning back. Capitalism is the god here and how long can we offer it?
We need to understand that most people work really hard on jobs to fulfill basic needs. These Jobs will be cut as the economy decreases. Most importantly, many businesses operate in small and medium scale and during economic crises, credit crunch occurs which make business owners feel like every move is a mistake. Unfortunately, pouring money on the capital market during these times won’t yield much either.