Although the reasons behind the challenges faced by digital payments and financial services platform Paytm and education technology company Byju's are different, their simultaneous downturns have been a wake-up call for the Indian industry, with analysts predicting the impact will intensify. Expect.
Paytm is facing a crisis due to persistent non-compliance. The Reserve Bank of India (RBI) has ordered a sudden crackdown on Paytm's payments services, citing widespread regulatory violations and failure to address supervisory concerns.
The company has been asked to suspend all banking services from March 15th. The company's stock price has plunged 40% since the RBI's initial announcement on January 31.
RBI Governor Shaktikanda Das reiterated on February 12 that the decision was final, stressing that the central bank had carefully considered the issue.
Byju's, once the world's most valuable edtech startup, is facing a long-anticipated disaster, largely due to investor-related issues.
The edtech company has been mired in legal disputes, financial mismanagement, declining valuations, and internal disputes between investors and management. Two years ago, Byju's was valued at US$22 billion. When the company issued a stock issue last month to raise new capital, its valuation had fallen to about $220 million.
Neil Shah, vice president of research at market research firm Counterpoint, points out the need for basic compliance and due diligence in the fintech space, highlighting the importance of robust systems to prevent tampering and ensure authenticity. emphasized.
“This is a wake-up call for other companies operating in this sector to start liquidating themselves. This is true in a market with many open and unpenetrated opportunities. We’re driving business practices forward,” he said.
technology, backbone
Already beset by global macroeconomic headwinds and geopolitical uncertainty, India is worried that slowing growth could impact its status as a technology powerhouse.
India's technology industry's recent revenue has crossed about $250 billion, with annual growth rates ranging from 8.1% in fiscal year 2022-2023 to 3.8% in fiscal year 2023-2024, which ends next month, according to industry statistics. %.
Despite being an attractive destination for Western countries in the long term with China+1 strategy, the recent technology industry has been characterized by sharp declines in technology spending, fewer deals, and weaker software services exports. The decline is a wake-up call. .
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VC investment in fintech and edtech startups in India was the lowest in five years last year, according to statistics from market research firm Venture Intelligence.
Investments in fintech companies last year amounted to US$1.349 billion, with the highest ever amount in 2021 being US$8.01 billion. Last year, his investments in edtech startups amounted to just US$198 million, the highest ever. 4.1 billion USD in 2021.
“Over the past year, capital, especially growth-side capital, has been depleted. What we have seen in recent months is that there is a fundamental shift from a growth orientation to a profitability orientation. ,” said Anuj Roy, managing partner at leadership advisory firm Fidius Advisory.
“This is the biggest change that has occurred in the last two years. The lack of capital has reset valuations and led to a change in approach from growth to profitability. This has forced companies to look more closely at their cost structures. “We are under pressure,” he added.
The founders of Paytm and Byju's, Vijay Shekar Sharma and Byju Raveendran, respectively, have cultivated personalities that they claim have cast a shadow over their companies.
Their cult-like nature has led to an echo chamber with little strategic business thinking to build a stronger brand, both internally and externally, and criticism has reportedly been dismissed.
Analysts expect new facts and challenges to emerge in the Indian technology sector in the coming months.
road ahead
With declining investor confidence, widespread project closures, and large-scale layoffs, the immediate future of India's technology industry is not looking rosy.
“What's happening in startups is very visible. Metrics and goalposts are being revised. There's a systemic change happening across the board in terms of course correction. This is particularly true for Paytm. When systemic changes like this occur, some companies will be better able to manage them and others will not be.'' CEO Anshuman Das said.
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India, which has more than 68,000 registered technology startups, has seen a significant decline in the creation of new startups over the past two years, with even established technology market participants going public last year. discouraged from doing so.
“We are now entering an era of high inflation, low liquidity and high levels of fiscal deficits. In such a scenario, financing is not easy for any business. Unfortunately, this change is very It happened so quickly. That's why there's so much anxiety and heat,” Das said.
Foreign direct investment in India fell from USD 85 billion in 2022 to USD 71 billion last year.
“The advantage of technology and internet companies is that they make profits very quickly and losses are very quick. We are bearish,” Das said.
