The Decline of VC Funding in Indian Fintech: What’s Driving the Slowdown?

Over the past decade India has seen a dramatic change in the way people access and do financial transactions. Combined with the growth of technology and increased internet users, the financial services industry has undergone massive transformations. Leading this change are the fintech startups which have emerged and are completely transforming the financial sector in India. 

What Is Fintech?

"Fintech" is short for "financial technology," and it refers to the use of technology to provide financial services. This includes a wide range of innovations such as digital payments, peer-to-peer lending, online banking, investment platforms, and even cryptocurrencies. In simple terms, fintech startups use technology to make financial services more accessible, affordable, and efficient.

Why Fintech Startups Grew So Rapidly in India?

There are many factors that have led to the rapid growth of fintech startups in India:

1. Digital Adoption: Increased smartphone usage and internet penetration have made digital financial services more accessible.
2. Government Initiatives: Programs like Digital India and Jan Dhan Yojana have promoted financial inclusion and digital payments.
3. Unified Payments Interface (UPI): UPI revolutionized digital transactions, making them fast, easy, and secure.
4. Access to large consumer base: Growing middle class population, out of which majority of them are young, tech-savvy, and open to adopting new financial services. 
5. VC Funding: Abundant venture capital funding supported the growth of fintech startups.
6. Regulatory Support: RBI and SEBI have provide a favorable environment for fintech innovations.
7. Underserved Market: A large unbanked population created opportunities for fintech to bridge the gap.
8. COVID-19 Impact: The pandemic accelerated the shift to digital payments and online financial services.

The Indian fintech industry has been one of the fastest-growing sectors in the world. With over 9,000 fintech companies, India ranks third globally in terms of the highest number of fintech entities and commands a 14% share of startup funding in the country. India has become a hub for financial technology. But when it comes to venture capital (VC) funding, the trends have been changing.

Trend 1: Big Growth in Early Years

Between 2018 and 2021, VC funding in Indian fintech grew rapidly. Startups raised billions of dollars as investors saw huge potential in India’s growing digital economy. For example, in 2021, Indian fintech startups raised $8.4 billion. Companies like Paytm, PhonePe, and Razorpay became immensely popular and everyone wanted to invest in this sector.

Trend 2: Funding Dropped After 2022

However, after 2022, VC funding started to slow down. In 2023, Indian fintech startups raised only about $2 billion, much less than the $8.4 billion raised in 2021. This declining trend was seen globally too. In 2022, global fintech VC investments fell 44% from their all-time high of US$140.8 billion in 2021. That trend continued in 2023, declining by 50% to US$39.2 billion and reaching its lowest level since 2017. 

As someone interested in the economy, I wanted to explore these trends and understand what’s happening in this exciting space.

What Is VC Funding?

In simple words, venture capitalists are investors who give money to startups in exchange for a share in the company. They take risks by investing in new businesses, hoping that these companies will grow and make huge profits in the future.

Why is VC Funding in Indian Fintech Decreasing?

1. Too Many Startups Doing the Same Thing

Over the years, a lot of fintech companies have come up in India. The number of fintech startups in India has grown from 2,100 in 2021 to 10,200 in 2024. With so many companies offering similar services—payment apps, online loans, and digital banks, it’s hard for new startups to stand out. Investors are now more careful and prefer to put money into well-established companies instead of taking risks on new ones.

2. Global Economic Problems

The world economy is not in great shape right now. High inflation, geopolitical tensions, and fears of a recession have made investors more cautious. Even though India’s economy is doing better than many others, startups here are still affected. When investors have less money to spend, they think twice before funding new businesses. Due to this global trend, in the first quarter of 2024, VC funding for Indian fintech companies dropped by 57.6% compared to the same period in 2023, totaling only $550.8 million.

3. Tougher Rules from the Government

The fintech industry in India has always been closely watched by the government. Recently, the RBI has introduced stricter rules for digital transactions and data privacy. While these rules protect customers, they make it harder and more expensive for startups to operate.

4. Emphasis on Profitability

For a long time, fintech startups were focused on growing fast. They gave big discounts, cashbacks, and even zero-interest loans to attract customers. But now, investors want to see if these companies can actually make a profit. Startups that can’t show a clear plan to earn money are struggling to get funding.

5. Competition from Traditional, Big Banks

Traditional banks in India are adopting technology rapidly, launching their own digital services. Since banks are already trusted and have more money, it’s harder for smaller fintech companies to compete. This also makes investors cautious.

What’s Next for Indian Fintech?

The drop in VC funding doesn’t mean the end of Indian fintech. Instead, it is a signal for startups to do smarter innovations with focus on solving real problems, manage their money better, and find ways to grow without depending too much on discounts. As a student, it’s fascinating to see how economic trends and business decisions shape the world. The Indian fintech journey is not over—may be it is just changing!

Currency Wars and De-dollarisation: Impact on India

In the world of international trade and economics, the terms "currency wars" and "de-dollarisation" are making headlines. But what do they mean, and why should they matter to us, especially in a country like India?

What Are Currency Wars?

Imagine two countries competing in a market to sell their products. If one country lowers the value of its currency (called devaluation), its goods become cheaper for other countries to buy. This makes it easier to sell more products abroad. However, this can hurt other countries that are trying to sell their goods because their products might become more expensive.

When countries deliberately devalue their currencies to gain this trade advantage, it’s called a currency war. It's like a race where each nation tries to make its currency weaker than the other’s.

What Is De-dollarisation?

For decades, the US dollar has been the main currency used for international trade and global reserves. However, some countries, particularly BRICS nations (Brazil, Russia, India, China, and South Africa), are now trying to reduce their reliance on the dollar. This process is known as de-dollarisation.

Main reasons for De-dollarisation

1. To protect themselves from US sanctions: Increasing geopolitical tensions and US sanctions on countries like Russia and Iran have highlighted the risks of dollar dependency. By diversifying away from the dollar, nations can shield their economies from such external pressures.

2. To avoid being dependent on the US economy: Emerging economies want greater control over their financial systems, reducing exposure to US monetary policies that often impact global markets.

3. To strengthen their own currencies: Countries like China, Russia, and even India are working towards using their own currencies or alternative systems for trade instead of the dollar.

4. Technological Advances: Blockchain and digital currencies are creating alternatives to traditional financial systems dominated by the dollar.

Why Are These Issues Important?

Both currency wars and de-dollarisation can reshape the global economy, affecting prices, trade, and financial stability.

Impact on India

1. Trade: If major trading partners devalue their currencies, India might face difficulties exporting goods because Indian products would become relatively more expensive. However, cheaper imports from these countries can lower costs for Indian consumers.

2. Oil Prices: India imports most of its oil, and it’s usually priced in dollars. De-dollarisation could reduce the impact of fluctuations in the US dollar on oil prices. If India starts paying for oil in rupees or other currencies, it could stabilize costs in the long term.

3. Global Influence: India’s participation in de-dollarisation efforts, such as through trade agreements in rupees, could boost the global importance of the Indian rupee.

4. Economic Growth: A stable and stronger rupee can attract more foreign investments and make India’s economy more resilient. But if currency wars create uncertainty in global markets, it could slow down India’s growth.

What Should India Do?

To handle currency wars and de-dollarisation, India can:

1. Use the Rupee for Trade: Over 88% of global trade, including India’s, is conducted in US dollars, making diversification a complex yet necessary task. India can trade with friendly countries using the Indian rupee instead of the US dollar.

2. Diversify Reserves: As of 29th November 2024, India’s forex reserves stood at $658.58 billion, with a significant portion held in US dollars. India can reserves in different currencies (like euros or yen) and invest in gold.

3. Strengthen the Economy: Grow industries, control inflation, and maintain stable prices.

4. Energy Security: Sign oil deals in rupees and invest in renewable energy to reduce fuel imports.

5. Expand Trade Partnerships: Build strong trade relations with other countries and regional groups like BRICS.

6. Digital Currency: Use the Digital Rupee for international payments to reduce dollar reliance.

Currency wars and de-dollarisation represent a shift in global economics. While these changes bring challenges, they also offer opportunities for countries like India to redefine their role in the world economy. By taking the above steps, India can not only protect itself from the negative impacts of currency wars and de-dollarisation but also position the rupee as a stronger global currency. This will enhance India's economic position and reduce vulnerability to global financial uncertainties.

Hey Siri, Are You My Friend or Foe?

Hey Siri, Are You My Friend or Foe?

I am a 16-year-old high school student who aspires to be an entrepreneur in future. My father always told me that one of the most satisfying aspects of being an entrepreneur is the ability to provide employment opportunity to people around you and contribute to nation's growth. So, job creation has been one of the major driving forces at the back of mind. But a recent news article caught my attention - How ChatGPT brought down an online education giant. Chegg's (an online go-to source for students who wanted help with their homework) stock dropped 99% as students prefer Artificial Intelligence (AI) now. Reading this and some other articles on how AI is slowly taking over jobs is really unnerving. While some companies are using AI to enhance productivity and create new opportunities, others are replacing human labour with automated systems. The rapid use of AI tools like ChatGPT, which is now used by 65% of businesses according to recent research, has already led to a wave of layoffs. 

Goldman Sachs has projected that AI could eliminate up to a quarter of all current work tasks in the United States and Europe, potentially putting tens of millions of jobs at risk.

Some Big Companies replacing or planning to replace workers with AI - 

1. MSN: The U.S. web portal MSN was one of the first to replace workers with AI. Since 2020, MSN has used AI to generate news content, resulting in the layoff of dozens of journalists.

2. IBM: IBM has announced plans to gradually replace 30% of its back-office roles with AI over the next five years, affecting approximately 7,800 positions. The company has already slowed hiring for certain clerical roles, with more significant changes anticipated in the next decade.

3. BT Group: The British telecommunications company BT intends to cut around 55,000 jobs by 2030, replacing about 10,000 of these with AI-driven solutions. While the company assures that not all customer service roles will be automated, AI will play a significant role in the future workforce.

4. Dell: US technology group Dell has announced its latest round of layoffs to streamline sales and marketing efforts and sharpen its focus on AI products and services. The company is reportedly letting go of as many as 12,500 employees, or about 10% of its global workforce, including seasoned team members.

5. Microsoft: In January, Microsoft announced plans to lay off 10,000 employees as part of broader cost-cutting measures while simultaneously making a “multibillion-dollar” investment in OpenAI, the company behind ChatGPT. 

6. Meta: Meta’s CEO Mark Zuckerberg announced plans to lay off another 10,000 workers in March, while also outlining plans for heavy investment in AI.

7. Google: At Google's third quarter earnings call, company CEO Sundar Pichai rang alarms for software engineers and coders saying that over 25% of Google's software is now written by AI. Though he said that engineers now have a different role but it raises concerns about the future of entry-level and routine coding positions. 

This trend is not limited to tech giants but is also evident in traditional industries that are integrating AI into their operations.

Many researchers say that the widespread use of AI will create new jobs and make workers more productive, but these changes will come with a cost. Most of these new job creations will happen in the technology field and increase the demand for professionals with skills in robotics, engineering, data analysis, IT and other AI-relevant skills. This means there will be a notable shift towards a more educated workforce, with a greater emphasis on STEM degrees and IT skills to fill critical AI jobs. This is a good thing. But then what will happen to the people who do not have the resources to be able to get the required education and training? They will be left behind and this will only deepen the existing inequality. AI could lead to income and wealth inequality not only within countries but also among countries. 

As per a Staff Discussion Notes done by IMF staff, almost 40% of global employment is exposed to AI. Interestingly, it says that AI has the ability to impact high-skilled jobs. A recent article in the Harvard Business Review suggests that while AI may not cause long-term macro-level unemployment, it is likely to lead to significant short-term job losses, particularly in white-collar professions that were once considered secure. According to the IMF staff, advanced economies face greater risks from AI—but also more opportunities to leverage its benefits—compared with emerging market and developing economies. In advanced economies, about 60% of jobs may be impacted by AI. Roughly half the exposed jobs may benefit from AI integration, enhancing productivity. For the other half, AI applications may execute key tasks currently performed by humans, which could lower labour demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear. In emerging markets and low-income countries, by contrast, AI exposure is expected to be 40% and 26%, respectively. These findings suggest emerging market and developing economies face fewer immediate disruptions from AI. At the same time, many of these countries don’t have the infrastructure or skilled workforces to harness the benefits of AI, raising the risk that over time the technology could worsen inequality among nations.

We are on the brink of a technological revolution and this trend is likely to persist, raising questions about the future of work and the role of human workers in an increasingly automated world. No doubt, it could improve productivity, boost global growth and raise incomes around the world. Yet it could also replace jobs and deepen inequality. We need a careful balance of policies by governments and companies to tap the vast potential of AI for the benefit of humanity.

So, coming back to the topic of my blog – ‘Hey Siri, are you my friend or foe’, the answer would very much depend on where I am coming from? 

Impact of US election 2024 result on India

The US election is probably the biggest event in the world right now. On November 5, the US will vote to elect its next President. It is a close contest between Democrat Kamala Harris and Republican Donald Trump. Harris has got a tiny lead over Trump nationwide, but the former president appears to be ahead in almost all the 7 swing states, as per major pollsters in the US. And winning in these states can be the differentiator for either candidate. The outcome of the election will influence the US foreign policy, trade agreements, defence strategies, global markets and this in turn will impact Indian economy too.

Trump has made it very clear to the world about his ‘America first’ policy focused on domestic growth, economic nationalism, and securing national borders. In his previous term, Trump government initiated a trade war with China and hiked tariff rates by 25% on $50 billion worth of commodities and by 10% on $200 billion worth of commodities imported from China. U.S. tariffs had a negative impact on the Chinese exporting firms who were unable to adjust their export prices and quickly divert sales to alternative markets, which led to declines in sales and profitability. Similar policy is expected from Trump if he comes to power. He will likely initiate a trade war — primarily with China (Trump has promised a higher 60% tariff on imports from China) but also with India (Trump has promised 10%-20% tariff on the rest of the world), whom he described on 17 September as a “very big abuser” of bilateral trade. However, he referred to PM Narendra Modi as a “fantastic man" later. As it did in 2019, the Indian government will respond to any US tariffs with tariffs on US exports, that will leave consumers in both India and the US worse off. US-centric trade policies may lead US pressuring India to reduce trade barriers or face tariffs. India’s IT, pharmaceuticals, textile, gems and jewellery sectors, which export significantly to the US, could be particularly impacted.

There is another aspect to US trade tariffs on China. If Trump imposes higher tariffs on China, then India might also have to increase tariffs on Chinese products to prevent an influx of cheap imports. Higher US inflation and higher Indian tariffs will all lead to inflation in India.

Some of the measures initiated by the Trump administration earlier makes the threat even more real for India.

• 2017: The “Buy American, Hire American” executive order makes it harder for foreigners — mostly Indians — to acquire H-1B work visas

• 2018: The Trump administration imposes tariffs of 10-25 per cent on Indian aluminium and steel, forcing India to impose retaliatory tariffs on 28 US products ranging from apples to nuts to chemicals.

• 2019: The Trump administration removes India from the Generalised System of Preferences (GSP) that resulted in significant tariff increases for Indian exports of textiles, apparel, leather goods, agricultural products etc. It affected US$6.3bn worth of Indian exports that previously enjoyed duty-free status.

However, things improved considerably during Joe Biden’s presidential tenure. India and the US resolved seven outstanding trade disputes covering trade in agricultural products, solar panels, steel and aluminium etc. Biden made it easier for Indian H-1B visa holders to renew their visas without leaving the US. And in January 2023, the US indicated it would consider restoring GSP benefits to Indian exports.

Trump’s policies potential impact-

• Inflationary - tariffs on imports would make foreign goods more expensive. Pushing companies to produce more in the US could also raise costs. Lowering tax rates for corporations, especially those manufacturing in the US
• Influence over the Fed – Trump has discussed increasing government’s influence over the Fed. Moreover, his policies could lead to higher interest rates, a strong US dollar and a slowdown in global growth.
• Interest rate impact - If interest rate cuts are delayed in the US, Foreign Investors flows into India might further dry up. Any delay in US rate cuts could also delay India’s repo rate cuts, prolonging pressures on the Indian economy.

On the other hand, Kamala Harris’ policies are largely status quo. She has indicated her preference for -

• Increasing spending through an increase in taxes on corporations and wealthy Americans and not raising taxes on anyone making less than $400,000
• Status quo on tariffs (continuing with the tariffs levied by Trump and Biden previously)
• Not influencing the Fed
• Taking steps to curb the inflow of incremental illegal immigrants (but not mass deportations)
• Continued support to Ukraine, NATO, Israel and Taiwan

So, except for her discomfort over India’s record trade with Russia in the context of the Ukraine war, Harris coming to power would not alter things significantly for Indian economy.

Immigration and H-1B visa policies is another area where Trump administration may make things difficult for India. A return to his restrictive policies, particularly regarding the H-1B visa programme, could complicate Indian workers’ access to American job markets, affecting sectors dependent on skilled Indian workers, particularly in technology. Indian IT firms may experience added cost pressures but are unlikely to see operational disruptions. Whereas, Harris-led Democratic administration favours expanding skilled worker visas, like H-1B. H-1B visa approval rates under Biden peaked at 98% in FY21, the highest in over a decade.

However, the Trump government might be favourable for global geopolitics, crude oil prices, defence technology and pharma. Merely a week before the US presidential election, Republican candidate Donald Trump emphasised his commitment to strengthening the “great partnership” between the US and India. His foreign policy promises to directly impact India’s economic and defence landscape. Following are some of the areas where India may benefit from a Trump-led administration-

• Alternate to Chinese production - Many argue that Trump’s push to reduce dependency on China by encouraging American companies to move their supply chains elsewhere could work in India’s favour. With favourable policies, it might open opportunities for India to replace Chinese imports and attract more US companies looking to diversify operations, boosting its economic prospects.
• Defence and security - Donald Trump’s stance on China aligns with India’s concerns, and defence cooperation would likely deepen under his leadership. His administration has previously strengthened the Quad, a security partnership between the US, India, Japan, and Australia, to counter Chinese influence in the Indo-Pacific. Additional joint military exercises, arms sales, and technology transfers could bolster India’s defence capabilities amid tensions with neighbouring countries like China and Pakistan. Even Kamala Harris has strong focus on strengthening Indo-Pacific partnerships to counterbalance China in South Asia through initiatives like INDUS-X. Biden and Harris emphasized technology transfer, co-production and integration of supply chains, and the co-production of GE engines for Tejas Mark-2 fighters. India’s Exports reached an all-time high of Rs 4,400 crore in FY24.
• Geopolitical influence - Donald Trump’s policies in South Asia could also affect India’s regional interests. While Trump has shown a willingness to work with Pakistan, he has insisted on accountability in counter-terrorism efforts, aligning with India’s security goals. Moreover, it may help in diffusing tensions and wars in Russia-Ukraine and the Middle East. If elected, Kamala Harris is likely to maintain the Biden administration’s multilateral, alliance-driven approach.
• Impact on oil prices - Trump favours expanding oil and gas drilling in US, which had led to an increase in US oil production by 36% between 2016 and 2019. Average crude prices during Trump’s regime (excluding covid year) were 25% lower than under Biden’s rule. His pro-oil stance, combined with attempts to ease geopolitical tensions, may help in reducing global oil prices, which could be beneficial for India's import-dependent energy sector. On the other hand, Harris’ policies are likely to align more with India’s push for renewable energy and reducing dependency on fossil fuels.

Why should India care if the US central bank cuts interest rates?

Central banks world over have been traditionally focusing on tools such as interest rates to adjust the supply of money as they work towards a goal of sustained economic growth. When interest rates are adjusted, banks, consumers, and borrowers may alter their behaviour in response. The way that rate adjustments motivate such behaviour is known as the interest rate effect. Generally, when interest rates are set by a nation’s central bank, consumer banks extend similar interest rates to their clients.

When interest rates rise, it becomes more “expensive” to borrow money and borrowing costs rise. As a result, consumers are less likely to buy things and businesses are less likely to put money in capital investment. These two sectors diminish under higher interest rates and therefore demand decreases. This reduced level of economic activity leads to lower inflation because lower demand usually means lower prices. High interest rates normally lead to an appreciation of the currency, as foreign investors seek higher returns and increase their demand for the currency. Due to appreciation of home currency, exports are reduced as they become more expensive, and imports rise as they become cheaper. In turn, GDP shrinks.

When interest rates fall, the opposite happens. Businesses and individuals are able to borrow money at affordable rates. This borrowed money leads to increased consumer expenditure and capital investment by businesses and aggregate demand accordingly rises. This leads to higher inflation because higher demand usually means higher prices. Low interest rates normally lead to depreciation of the currency as foreign investors seek higher returns in other countries where interest rates are higher. They sell their home currency in order to buy the foreign currency. A depreciated home currency is generally good for exports and discourages imports as they become more expensive.

 

Why Fed is doing what it is doing?

The US Federal Reserve (Fed) just cut rates for the first time in 4 years and everyone is talking about it. But the question is why would change in US interest rates impact us? Let us understand that in some context first.

We all know that the Covid pandemic impacted every economy and business negatively. Even the US was not spared. The US unemployment rate jumped to 14.7%. To counter the economic disruption and a recession experienced in the wake of the Covid-19 pandemic, the Fed delivered two huge rate cuts at unscheduled emergency meetings in March 2020, returning the federal funds target rate range of zero to 0.25%.

While the US economy was technically growing again by May 2020, after the shortest recession on record, but the US supply chains remained disrupted, and we know from the basic economic fundamentals that when the supply is less, prices rise. And that is what exactly happened. Later, as people started getting out of their homes, the demand for goods and services soared but there was still not enough supply to go around and that drove prices even higher.

Meanwhile, the US government came out with massive support programs during the pandemic and pumped about $5 trillion into the economy. With all this extra cash, people and businesses had more money to spend, which sent demand through the roof. There weren’t enough workers to fill all the open jobs, and this made things worse. Between mid-2021 and early 2022, the number of US job openings doubled compared to unemployed workers. To attract employees, companies had to offer higher wages. And more money in the pocket meant more demand which drove up the cost of goods and services all over again. New supply shocks also appeared as Russia's invasion of Ukraine led to a sharp increase in energy and commodity prices. So, it was no surprise that US inflation skyrocketed and hit a 40-year high of 9.1% in mid-2022. People started feeling the pinch, and the US Fed had to step in. The central bank decided to increase interest rates to make borrowing more expensive. This way, people and businesses will spend less, and inflation will cool down. Fed raised interest rates 11 times in 2022 and 2023, to cool things down.

But as mentioned earlier higher rates also mean borrowing costs go up for companies, leading to cost-cutting, slower expansion, layoffs and less hiring. So as a side effect of the rate hikes, US unemployment, which had hit 3.4% in January 2023 - lowest since 1969, started moving up. So, last year, the Fed hit pause on raising rates further and kept them steady instead. Until just a few days ago, when it finally decided to cut them. And it’s all thanks to unemployment again. Because US unemployment had climbed up nearly 1% reaching 4.2%. Fears of recession in US gripped the financial markets. So, to prevent a bigger slowdown, the Fed cut rates by 0.5%.

But the question is “Why should India care if the US central bank cuts interest rates?”

The US plays a huge role in the global economy, and central banks everywhere keep a close eye on its moves to shape their own economic strategies. There’s an old saying, “When the US sneezes, the world catches a cold.” So, the Fed’s actions, like interest rate cuts, can ripple through other economies.

Lower US rates can make investing in countries like India more attractive. This strategy is known as carry trade, where investors borrow money in the US (where rates are low) and invest it where rates are higher, making a profit on the difference. With more dollars circulating, the value of the dollar drops compared to other currencies. This could lead to more capital flowing into markets like India -be it in stocks, debt, or in the form of foreign direct investment (FDI).

A cut in US interest rate also makes it cheaper for Indian companies to repay loans taken in US dollars. For example, let’s assume that an Indian company took a $100 loan when $1 was worth ₹85. If a rate cut weakens the dollar to ₹84, then repaying a $100 loan becomes cheaper from ₹8500 to ₹8400. While a depreciated dollar or an appreciated home currency (Indian rupee) makes payment for imports of various commodities cheaper for the Indian companies but it can have adverse impact on export competitiveness and also leads to reduced export revenue.

There is also an impact on crude oil. A barrel of oil is priced in U.S. dollars across the world. When the US cuts interest rates, the dollar weakens, it becomes relatively more affordable to purchase oil and attracts more global buyers, which in turn drives up crude prices. For a country like India, which relies heavily on oil imports, it could mean paying a lot more for its energy needs. This could even push up inflation in India making everything from fuel to groceries more expensive.

That puts India and other emerging economies in a complex situation, especially with the US Fed hinting at more rate cuts in the coming months — up to six more times until 2025 – to bring them down to around 3% to 3.5% from the current 4.75% to 5% range. And one should not forget the vicious cycle that lowering rates might start again. It may help with unemployment in the US, but it can also push inflation higher all over again.

So, for the central banks across the globe, it is forever a tricky balancing act and for emerging economies like India the task of maintaining price stability along with other economic development goals becomes even more challenging.

BlackBerry – The Disrupter that Got Disrupted

BlackBerry smartphones were once the peak of mobile technology. In the late 1990s and early 2000s, carrying a BlackBerry device was a status symbol in the business world. But despite its early dominance, BlackBerry eventually failed and vanished from smartphone marketspace. The story of BlackBerry is a cautionary tale of how slow adaptation to changing market trends, lack of consumer focus, complacency, poor leadership decisions, and a failure to innovate ultimately killed a multi-billion dollar company which was once a pioneer of the industry.

The Origin of BlackBerry

A decade and a half ago, there was no bigger status symbol than the BlackBerry. It was a tech gamechanger. BlackBerry Limited, known as Research in Motion (RIM) until January 2013, was founded in 1984 by two Canadian engineering students, Mike Lazaridis, and Douglas Fraggin. They started working on wireless motion technology. In 1989, the Canadian phone company Rogers contracted RIM to work on its mobile text network, a system specifically designed for messaging.

The Rise of BlackBerry

Gathering expertise in mobile messaging from Rogers project, RIM introduced its first two-way messaging pager in 1996. It was one of the first pagers with BlackBerry’s trademark QWERTY keyboard. The name "BlackBerry," was inspired from the small, round keys on the keyboard that resembled the fruit. The pager’s main feature was its ability to integrate with email. It ran on its own operating system, with secure, encrypted messaging. It quickly became popular with business people, on Wall Street, in law firms, etc. The first prominent release from BlackBerry, the Inter@ctive Pager 950, was in 1998. It had a small-sized screen, keyboard buttons, and the iconic trackball that allowed seamless syncing and continuous access to corporate emails. It became an instant hit, and then there was no looking back. RIM's revenue skyrocketed and increased by 80% to $85 million after the release of 850 pager in 1999 which supported “push email” from the Microsoft exchange server. It would not be wrong to say that BlackBerry led the foundation of today’s messaging system.

In the 1990s, bandwidth was limited and BlackBerry understood this constraint and devised an instrument that shared bits of electronic data communication in such a manner as not to overload the networks. In 2000, BlackBerry launched the first smartphone, called the BlackBerry 957. While other companies sold devices that could barely function over a network at exorbitant prices, BLACKBERRY devices were affordable and they operated well. The devices from BlackBerry were launched with QWERTY keyboards used for typing lengthy notes. BlackBerry devices soon became a necessity among business people.

Gradually, in an attempt to target an everyday, non-business user, BlackBerry added more features to its devices. The ‘BlackBerry Pearl’ was launched to target non-business users. The device featured various multimedia elements such as a camera, and also came with a new feature called ‘BlackBerry Messenger (BBM)’. It was a huge hit with the public and garnered a lot of positive feedback. Between 2001 to 2007, BlackBerry saw worldwide expansion and the addition of new products to its range.

The Hype and the status symbol

The hype of the BlackBerry carried to celebrities and politicians like Lady Gaga, Madonna, Kim Kardashian, ex-US President Barack Obama who became its fans. The BlackBerry was instrumental in changing the way that humans worked. Owning a BlackBerry meant that you didn’t have to be stuck at a desk. It meant that one could carry their office around with them at all times. If you had a BlackBerry, you were signalling to the world that you were busier than most people. It meant you were needed. BlackBerry laid the foundation for the development of smartphones.

The Number Game

BlackBerry devices were revolutionary, and found everywhere. At the end of 2007 the company had a market capitalization of more than $60 billion. In 2008, its global user base grew to over 20 million people. At its peak in Q1 2009, BlackBerry had 20% of the global mobile smartphone market. In the U.S, the BlackBerry hit its peak in September 2010, with almost 22 million users, or 37% of the market share. By 2011, it had sold more than 50 million units worldwide.

However, technology changes quickly and this change altered BlackBerry’s market landscape drastically. BlackBerry went from 20% of the global mobile market share to almost 0, making it discontinue its master product.

The Rise of the iPhone and Android

Apple iPhone was a new player in the smartphone field set to disrupt the mobile phone market in the way BlackBerry had. Steve Jobs revealed the device to the world in early 2007, calling it a “revolutionary product”. The introduction of the iPhone in 2007 marked a turning point in the smartphone industry. With its sleek design, touch screen interface, and extensive app store, the iPhone changed the way people interacted with their mobile devices. Apple made smartphones intuitive and enjoyable to use. Downloading music, social networking, streaming video – Apple created limitless possibilities in a sleek, user-friendly package.

BlackBerry, failed to understand changing consumer demand and recognize iPhone as a direct competitor. Lazaridis in fact dismissed iPhone as a ‘toy’. Due to their early success, BlackBerry remained complacent and this was the beginning of their downfall. When the iPhone started selling well, BlackBerry hastily released a touchscreen device (BlackBerry Storm), which often didn’t work properly. Subsequent devices reintroduced the keyboard in a combo touchscreen-keyboard setup (e.g., BlackBerry Bold), which helped the company briefly but eventually could not do much as the market continued moving toward the experience offered by iphone and other Android based phones. After many attempts to change its strategy, BlackBerry eventually was forced to exit the hardware market. BlackBerry's market share declined sharply by the mid-2010s. On January 22, 2012, Mike Lazaridis and Jim Balsillie resigned as the CEOs of the company. On March 29, 2012, the company reported its first net loss in years. In 2013, the company's board of directors replaced its CEO and began a restructuring plan to try to save the company. Despite its efforts, the company was unable to turn things around, and in 2016, BlackBerry announced that it would no longer manufacture smartphones and would instead focus on software development. 

Lessons to be learnt from the fall of BlackBerry

The rise and fall of BlackBerry offer valuable lessons for companies in general and especially companies operating in the fast-paced and ever-evolving technology industry.

1. Adaptability is crucial - Companies must be willing to adapt and respond to shifting market dynamics. BlackBerry's failure to recognise the significance of touch screen technology and adapt its devices accordingly proved to be a fatal mistake.

2. Complacency Kills – An organisation should never believe that their position is undisputable, no matter how successful they are. BlackBerry became set in their ways, unwilling to upset a winning formula. When the marketplace began changing rapidly, BlackBerry failed to change with it. BlackBerry assumed that its loyal customer base would continue to purchase its devices.

3. Consumer focus is essential for long-term success - Companies need to focus on the User Experience. Companies must prioritize intuitive design and adapt their products to meet evolving consumer preferences. The biggest mistake of BlackBerry was that it did not foresee and incorporate the change in customer behaviour towards touch screen with more inclination towards apps and app-related services.

4. Innovation is key to staying competitive - BlackBerry's reluctance to innovate and introduce new features and functionalities limited its ability to attract and retain customers. In today's fast-paced technology, companies must continuously innovate and evolve to meet the ever-changing demands of consumers. They remained fixated on keyboards, battery life, and enterprise software – important factors once upon a time. But the market preference changed to touchscreens, apps, and processing power.

5. Pay close attention to market innovation (especially competitors) – Companies must keep a track of new innovations in the industry. Competitor’s information should also be tracked very closely.  Never take your position for granted. Close attention must be paid to disruptive innovations.

6. Flexible & Forward-looking Management – Adaptable strategic thinking was one of the mistakes made by top management at BlackBerry. They never expected that consumers will make a shift towards screen touch mobile phones or even change preferences so rapidly.  Management should be ready to re-strategize to align with the market’s needs. Leaders must stay flexible, hungry, and forward-thinking. They should also have a culture that encourages and rewards innovation within their organization. This involves creating an environment where employees feel empowered to share ideas, experiment, and take calculated risks. Companies must be willing to reassess their business models and make bold decisions to adapt to changing market conditions.

How Geopolitical Events Impact Oil Prices

Crude oil, also referred to as ‘Black Gold’, is a raw natural resource that is extracted from the earth and refined into products such as gasoline, jet fuel, and other petroleum products. It is a non-renewable resource, which means that it can’t be replaced naturally at the rate we consume it and is, therefore, a limited resource. Crude oil is an important global commodity that is traded in markets around the world. It is currently the primary source of energy production.

Price of Crude Oil

Price of crude oil has significant impact on global economy. Rising oil prices mean higher petrol prices, higher shipping costs, and increased input costs for industry. Like any other commodity, oil prices mainly depend upon its demand and supply. When the demand is more and supply is less the price rises whereas when the demand is less and the supply is more, the price falls. Changes in supply and demand can be due to political, geopolitical events or natural disasters.

Major Suppliers of Oil

The United States, Saudi Arabia, and Russia are the leading producers of oil in the world. Establishing control on the reservoirs of oil has been a source of many political conflicts across the globe for years.  In the late 19th and early 20th centuries, the U.S. was one of the world’s leading oil producers. But, U.S. oil production fell during the middle and last decades of the 20th century. The U.S. started to import oil. Its major supplier was the Organization of the Petroleum Exporting Countries (OPEC) consisting mostly of Gulf countries, founded in 1960. OPEC countries are some of the world’s largest holders of crude oil and natural gas reserves. So, one can say that OPEC nations play a major role in determining supply of oil and its price.

Historical Events that impacted oil prices-

The global price of crude oil was relatively consistent in the 19^th century and early 20^th century. This changed in the 1970s, with a significant increase in the price of oil globally. Some of the notable events that led to price fluctuations in oil prices include -

Ø  Arab Oil embargo 1973 – Arab members of OPEC decided to put an embargo (prohibit) on oil exports to the United States, Japan, and western Europe, which together consumed more than half the world’s energy. OPEC’s decision was made in retaliation for Western support of Israel against Egypt and Syria during the Yom Kippur War (1973).

Impact – The price of oil quadrupled to almost $12 a barrel by 1974 due to the embargo. These economies were already experiencing difficulties and actions of OPEC led to a steep recession accompanied by rising inflation. As a result, the U.S experienced its first fuel shortage and first major increase in gasoline prices since World War II. The U.S. government took various measures to reduce domestic consumption. President Nixon considered military action to seize oil fields in Saudi Arabia, Kuwait, and Abu Dhabi as a last resort. Although the oil embargo was lifted in 1974, oil prices remained high, and the capitalist world economy felt the pressure throughout the 1970s.

  

Ø  The Iranian Revolution 1979 – Iran witnessed a popular uprising in 1978–79 that resulted in the toppling of the monarchy on February 11, 1979, and led to the establishment of an Islamic republic. This Iranian revolution led to social unrest and severely damaged the Iranian oil industry.

Impact – There was a severe loss of output and a rise in prices. Oil prices more than doubled to $39.50 per barrel. The situation worsened following the outbreak of the Iran-Iraq War in 1980. Oil production in Iran and Iraq fell drastically leading to economic recessions worldwide. In 1981 the price of oil stabilized around $32 per barrel. By 1983, major capitalist economies had adopted more-efficient methods of production, which led to an over-supply of oil. Oil prices returned to pre-crisis levels by mid-1980s.

Ø  The Gulf War 1990 – On August 2, 1990, Iraq under the leadership of Saddam Hussein invaded Kuwait, a fellow OPEC member. Iraq and Kuwait had been producing a combined 4.3 million barrels of oil per day. The threat of loss of these supplies along with threats to Saudi Arabian oil production, led to a rise in oil prices.

Impact – The dispute lasted only nine-months and the price spike was less extreme. Oil prices rose from $21 per barrel at the end of July to $36 per barrel in October. The U.S led military success against Iraq helped to bring oil prices down.

 

Ø  Decline in Oil prices 1980 to 2000 - After 1980 there was a steady decline in oil prices over the next 20 years, except for a short-term increase during the Gulf War as mentioned above. It generally remained under $25 per barrel. Mexico, Nigeria, and Venezuela expanded their production during this time. The Soviet Union became the largest oil producer in the world, and oil from the North Sea and Alaska also flooded the market.

 

Ø  Period from 2000 – 2008 – After 9/11 terrorist attacks, oil prices fell again to around $20 in late 2001. Period after that saw various geopolitical events, natural disasters and other factors like Middle East tension, soaring demand from China, North Korean missile tests, conflict between Israel and Lebanon, worries over Iranian nuclear plans, Hurricane Katrina, etc leading to a gradual increase in oil prices. Oil prices reached its highest at $147.30 in July 2008.

 

Ø  Financial crisis of 2007-2008 and period after that - The second half of 2008 witnessed a deepening economic recession and a severe financial crisis that impacted oil and gas prices. The global recession led to decreased demand for energy in late 2008, with oil prices falling from the July 2008 high of $147 to a December 2008 low of $32. This was almost a fall of 78%. Oil prices stabilized by August 2009 and remained between $70 and $120 through November 2014. US oil production started to increase substantially after that. Oil prices once again fell sharply to around $34 per barrel by early 2016. U.S became the largest oil producer by 2018.

 

Ø   2020 Russia–Saudi Arabia Oil price war – Ø  As a result of the COVID-19 pandemic, demand for oil came down globally causing oil prices to fall. On 5th March 2020 an OPEC summit was held in Vienna where it was agreed to further cut oil production. The group was expected to review the policy on 9th June during their next meeting. However, on 6th March, Russia rejected the demand, marking the end of the unofficial partnership. Oil prices fell 10% after the announcement. On 8th March 2020, Saudi Arabia started an oil price war with Russia, which led to a 65% fall in the price of oil in 3 months. Crude oil prices fell below zero for the first time in history. A negative price suggests sellers were paying buyers to take deliveries to avoid storage cost, as oil demand crashed globally. The over-supply led Russia and Saudi Arabia to end the price war and OPEC and its allies agreed to production cuts. In the second half of 2020, oil prices started rising amid further production cuts and a gradual reopening of world economies post COVID-19. Oil prices shot up again to about $85 by Oct 2021.

 

Ø  2022–2023 Russia–Ukraine War

Russia attacked Ukraine on 24^th February 2022. Following Russia's invasion, the U.S, the European Union and other countries, imposed sanctions on Russia. These countries announced that they would ban or cut down Russian oil imports. Both the invasion of Ukraine and the series of reactions from Western countries sent the prices of oil and gas soaring. The price of crude oil increased from around $76 per barrel at the start of January 2022 to over $110 per barrel on 4 March 2022.

Geopolitical tensions, Sanctions and Impact on Oil-Importing Countries

It has been seen historically that the geopolitical tensions between OPEC members and Western countries have been one of the major factors for extreme changes in the price of oil. Sometimes these tensions lead to one nation or a group of nations coming together to impose sanctions on an oil-producing country. As a result, there is a shortage of oil supply and the price rises. For example, former US President Donald Trump wanted to bring down Iranian oil exports to zero. He imposed sanctions on Iran and this threatened to wipe out around 1 million barrels of oil per day from market. This resulted in oil price increasing more than $75 per barrel for the first time in 2019. Oil sanctions also have an impact on countries which import oil. For example, oil is highly important for a developing economy like India to move forward and achieve high levels of growth. But the problem is that India is world's third largest oil importing and consuming nation and imports more than 80% of its crude oil needs. A rise in oil price leads to an increase in prices of all goods and services because of its use in transportation of goods and services. It also affects us all directly as petrol and diesel prices rise. As a result, inflation rises. With the increase in inflation, purchasing power is reduced, expenditure increases, savings decrease. It also affects companies - directly because of a rise in input costs and indirectly through a fall in consumer demand. All of this ultimately slows down the business and economic activities and thus slows down the GDP growth rate. According to a recent calculation, a $10/barrel increase in the average crude oil price for this fiscal (2024-25) pushes up the net oil imports of India by $12-13 billion during the year.