Business Failures & Learnings During Covid-19 Pandemic in India

1. Introduction: Setting the Context for Indian Businesses

The Indian business landscape, prior to the Covid-19 pandemic, was marked by rapid growth, entrepreneurial dynamism, and a strong push towards digitalization. India’s economy had been one of the fastest growing in the world, with sectors such as retail, hospitality, travel, and MSMEs (Micro, Small & Medium Enterprises) contributing significantly to GDP and employment. However, this growth was built on a complex foundation characterized by diverse consumer preferences, fragmented supply chains, and heavy reliance on informal networks—factors uniquely Indian in nature. When the pandemic struck in early 2020, these very characteristics exposed deep vulnerabilities across industries. Businesses faced unprecedented disruptions due to sudden lockdowns, labour migration, broken logistics, and fluctuating consumer demand. Unlike more formalized economies, India’s vast informal sector—employing millions—was hit especially hard. At the same time, many companies struggled with limited cash reserves and access to institutional support. This introduction sets the stage for understanding how India’s distinctive market features both amplified the impact of business failures during Covid-19 and shaped the learnings that emerged from this crisis.

2. Major Business Failures During Covid-19

The Covid-19 pandemic hit India’s business ecosystem with unprecedented intensity, particularly exposing the vulnerabilities of Small and Medium Enterprises (SMEs) and homegrown startups. Several sectors that had been the backbone of Indias economic growth faced critical setbacks, leading to widespread closures and job losses. Let’s take a closer look at how different key industries were impacted.

Impact on Key Industries

Startups and SMEs: The Hardest Hit Segment

The startup ecosystem in India, once celebrated for its exponential growth, came under severe stress. According to reports from Nasscom, nearly 70% of Indian startups faced cash-flow challenges by mid-2020. Many early-stage ventures—especially those operating in events, travel-tech, offline retail, and hospitality—ran out of runway as funding dried up and consumer demand evaporated overnight.

Bengaluru-based co-working startup Innov8 had to shutter multiple locations due to prolonged office closures. Similarly, Delhi-based event management SME Weddingz.in saw bookings crash to zero during the nationwide lockdown period—a stark reminder that even digital-first businesses weren’t immune.

The collective impact was felt not just in metro cities but across Tier-2 and Tier-3 towns where small businesses are often the largest employers. This period also exposed gaps in digital adoption among traditional SMEs, as those without an online presence found it almost impossible to operate or pivot quickly.

The pandemic laid bare the need for resilience planning, digital transformation, and diversification—key lessons that would shape the next phase of Indian entrepreneurship.

3. Cultural and Economic Challenges Faced

The Covid-19 pandemic brought forth a unique set of cultural and economic hurdles for Indian businesses, setting the stage for both unprecedented failures and invaluable lessons. Unlike many Western economies, India’s business ecosystem is deeply intertwined with local customs, diverse languages, and an informal workforce, which collectively shaped the way enterprises navigated this crisis.

Disrupted Supply Chains: The Ripple Effect

With strict lockdowns imposed across states, supply chains—especially those dependent on interstate movement—were severely affected. Local kirana stores, MSMEs, and even large FMCG companies found it challenging to source raw materials and distribute products. The domino effect trickled down from manufacturers to wholesalers and finally retailers, causing shortages and revenue losses across sectors.

Labour Migration: The Human Cost

India witnessed one of the largest internal migrations in its history during the pandemic. As factories and construction sites shut down, millions of migrant workers returned to their hometowns in Uttar Pradesh, Bihar, West Bengal, and other states. This exodus left urban businesses grappling with acute labour shortages just when they needed to restart operations post-lockdown. For entrepreneurs, rebuilding teams became as critical as managing finances.

Cash Flow Crunches: Managing Liquidity Under Pressure

The sudden drop in demand meant a severe cash flow crunch for countless small businesses. Many SMEs—often operating with thin margins and limited access to formal credit—struggled to pay vendors, staff salaries, or rent. Traditional Indian business practices that relied heavily on credit cycles (“udhaar”) came under immense stress, highlighting the need for better financial planning and diversification of revenue streams.

Digital Adoption: A Double-Edged Sword

While digital transformation accelerated during the pandemic, it also exposed the digital divide between urban and rural India. Businesses in metro cities quickly adopted tools like UPI payments, WhatsApp orders, and e-commerce platforms. However, smaller towns faced challenges due to inadequate infrastructure, language barriers, and lack of digital literacy. Entrepreneurs who could pivot online survived better but had to invest heavily in upskilling themselves and their teams.

Together, these India-specific obstacles tested the resilience of business owners across the country. Those who embraced innovation while respecting local sensibilities managed not just to survive—but also sowed seeds for future growth.

4. Community Responses and Government Interventions

The Covid-19 pandemic presented unprecedented challenges for Indian businesses, especially MSMEs and local entrepreneurs. The Indian government took swift action to offer relief and support, but the response was truly a collective effort involving communities, grassroots organisations, and various stakeholders across Bharat.

Indian Government Relief Packages and Policies

The government introduced several relief packages to cushion the economic blow. The Aatmanirbhar Bharat Abhiyan (Self-Reliant India Mission) was a key initiative, providing financial support and liquidity measures for businesses. Schemes such as the Emergency Credit Line Guarantee Scheme (ECLGS), collateral-free loans for MSMEs, moratorium on loan repayments, and tax compliance relaxations were rolled out to ensure business continuity during the lockdowns.

Community and Grassroots Responses

Beyond government action, Indias strength was in its community spirit—jugaad (innovative fix) mentality came alive. Local NGOs like Goonj and Akshaya Patra Foundation mobilised relief supplies for daily wage earners and migrant workers. Resident welfare associations turned into micro-support hubs, arranging groceries, medicines, and even oxygen concentrators for those in need.

Role of Local Entrepreneurs and Startups

The crisis spurred a wave of entrepreneurship rooted in empathy. Many startups pivoted their offerings—textile units began producing masks and PPE kits; tech startups built contactless delivery apps or telemedicine platforms tailored for Indian users. Small kirana stores digitalised overnight using UPI payments or WhatsApp orders to keep serving their mohalla (neighbourhood).

Key Learnings from Community-Led Initiatives:

• Collaboration over Competition: Businesses joined hands with NGOs and local authorities to distribute essentials.
• Digital Inclusion: Even small towns adopted e-commerce solutions rapidly due to necessity.
• Cultural Adaptability: Solutions were tailored for linguistic diversity and regional customs—for example, food relief accounted for vegetarian preferences during lockdowns.
• Sustainable Networks: Partnerships formed during the crisis have continued post-pandemic, creating resilient supply chains.

The pandemic highlighted that while sarkari (government) interventions are vital, it is ultimately the synergy between policy makers, grassroots leaders, and everyday citizens that determines the resilience of Indian business ecosystems. This combination of top-down support and bottom-up innovation is now shaping a new era of entrepreneurial thinking across India.

5. Key Learnings for Indian Entrepreneurs

Agility: The Need for Swift Adaptation

The Covid-19 pandemic taught Indian entrepreneurs that agility is not just an advantage, but a necessity. Businesses that survived and thrived were those quick to pivot—be it changing product lines, shifting to online models, or exploring new customer segments. In the Indian context, this meant even traditional kirana stores rapidly adopting home delivery and digital payments using UPI and Paytm. Flexibility in decision-making helped many overcome supply chain disruptions and labour shortages.

Digital Transformation: Going Beyond Brick & Mortar

If there was ever a time to go digital, the pandemic was it. Many Indian businesses realized that their survival depended on embracing technology—from setting up e-commerce websites to leveraging WhatsApp Business for order management. Those who invested in digital marketing and cloud-based tools managed to stay connected with customers and continued operations despite lockdowns. This transformation also broke barriers for tier 2 and tier 3 city entrepreneurs, making pan-India reach more accessible than ever.

Leveraging Jugaad: Frugal Innovation at Its Best

Jugaad—a uniquely Indian approach to problem-solving using limited resources—became the backbone of business resilience during Covid-19. From local manufacturers repurposing machinery to produce PPE kits, to small eateries collaborating with Swiggy and Zomato for survival, jugaad showcased how creative thinking could bridge resource gaps. Indian entrepreneurs learned to make do with what they had, often leading to innovative solutions that may outlast the crisis itself.

Building Business Resilience: Preparing for Uncertainty

The pandemic reinforced the importance of building long-term resilience into business models. Entrepreneurs now understand the need for financial buffers, diversified supply chains, and flexible workforce arrangements. Many have started prioritizing employee well-being and mental health, recognizing that people are a company’s greatest asset during turbulent times. Setting up contingency plans and adopting a proactive risk management mindset has become part of the new normal in India’s entrepreneurial landscape.

Takeaway: A New Playbook for Indian Entrepreneurship

The key learnings from the pandemic era have created a new playbook for Indian entrepreneurs—one that values adaptability, leverages digital tools, embraces frugal innovation, and puts resilience at its core. By internalizing these lessons, India’s business community is better equipped to navigate future challenges and build more sustainable ventures.

6. Future Outlook: The Road Ahead for Indian Businesses

The Covid-19 pandemic has been a catalyst for significant change in the Indian business landscape, accelerating trends that were already on the horizon while introducing new challenges and opportunities. As we look to the future, Indian entrepreneurship is demonstrating remarkable resilience and adaptability.

Shifts in Consumer Behaviour

Indian consumers have become increasingly cautious, value-driven, and health-conscious post-pandemic. There is a growing demand for local products, sustainable brands, and transparent supply chains. The Vocal for Local movement has gained momentum, encouraging businesses to source and manufacture within India. This shift has opened doors for homegrown startups and SMEs to connect with customers who prefer authenticity and social responsibility over global brand names.

Digital Adoption & Technological Leap

The pandemic forced even traditional businesses to embrace digital solutions at an unprecedented pace. From kirana stores launching WhatsApp order services to large enterprises investing heavily in cloud infrastructure, the digital transformation is visible across sectors. E-commerce, fintech innovations like UPI payments, online education (EdTech), telemedicine, and remote work tools have become mainstream. This rapid adoption of technology has not only improved operational efficiency but also expanded market reach beyond metro cities into Tier 2 and Tier 3 towns.

Emerging Opportunities

The post-pandemic world presents unique opportunities for Indian entrepreneurs willing to innovate. Sectors such as healthcare, agritech, clean energy, logistics, and digital content are ripe for disruption. Startups focusing on solving India-specific problems—be it affordable healthcare delivery or last-mile connectivity—are attracting both local and global investors. Moreover, government initiatives like Startup India and Atmanirbhar Bharat are providing support through funding schemes and regulatory reforms.

The Way Forward

While challenges persist—such as supply chain disruptions, inflationary pressures, and evolving regulations—the entrepreneurial spirit in India remains undeterred. Successful founders are those who have learned from failures during the pandemic: they prioritize agility, invest in robust digital infrastructure, build resilient supply chains, and nurture talent with a growth mindset. Looking ahead, collaboration between businesses, government, and society will be key to building a more inclusive, innovative, and sustainable business ecosystem in India.