Can Silicon Valley still dominate’ Global Innovation’?, Are Indian Startups at risk after the US Bank Collapse?
Ira Singh
9 April’23
The world economy faces dangerous road ahead.Faced with high inflation central bank around the world have raised interest rates rapidly.Despite benchmark interest rates are going from near zero to 4.75% approximately ,according to sources.Perhaps Silicon Valley Bank’s(SVB) trouble are the first sign that a recession has arrived.In that sense its no wonder this bank has everyone spooked.It was the biggest banking collapse in America since Washington Mutual in 2008.
The era of monetary policy has enabled Tech companies of all sizes to raise and deploy funds,and Silicon Valley Bank benefitted from this boom.But Ukraine war has fueled global inflation levels and that has led central banks to tighten monetary policy aggressively.
Silicon Valley Bank (SVB), is a California based bank running since 1983 that lends to early stage technology and biotech startups and manages funds of venture capitalists..,etc was shut down by US regulators recently.It had been trying to raise money to plug a loss from the sale of assets affected by higher interest rates.Word of troubles led customers to race to withdraw funds leading to cash crises. Banks fail as they lend long term , whereas their deposits are short term.They cannot call back their long term loans easily,whereas their short term deposits have to be paid on demand.
Bank shares in the US, Asia and Europe slumped following the collapse of SVB and Signature Bank ,as investors fretted about general state of the banking sector.Smaller US lenders were particularly hard hit.Since most banks spread their exposure across lots of sectors and also have plenty of cash on hand, the assumption is that the risk to the rest of the banking sector is low.
However, failures have highlighted the fact that many banks are riskier than they might look, because many will have sustained losses on their investments,in government bonds as interest rates soared, pushed their value down.That’s a prospect investors have been waking up to in recent day and is one reason why bank shares fell.
Silicon Valley has been a dominant force in global innovation for decades and is home to some of the world’s largest and most successful technology companies. However, innovation and entrepreneurship are not limited to any one region, and we have seen significant growth in technology startups and innovation ecosystems around the world in recent years.
While SVB meltdown is unlikely to have a major impact outside of tech,it is going to be “catastrophic” for Startups.As India is a more consumption oriented economy, the impact may be muted.
In particular, India has emerged as a major player in the global startup scene, with a growing number of successful startups and a supportive government policy environment.
While there may be some impact on Indian startups in the event of a US bank collapse, it is difficult to predict the exact nature and magnitude of this impact.However, if west slips into recession it will impact Indian financial markets and growth rates.
At the moment, experts do not expect any issues to spread to the broader banking sector ,according to sources
It is worth noting that the success of a startup or innovation ecosystem depends on a complex set of factors, including access to capital, talent, markets, and government policies, among others.
While Silicon Valley has a strong advantage in many of these areas, other regions, including India, have been able to overcome these challenges and achieve success in the global marketplace.
The most recent round of stress tests by the Federal Reserve of the largest banks and financial institution showed all of them would survive a deep recession and a significant drop in unemployment, according to reliable sources.
While Silicon Valley will likely remain a dominant force in global innovation for the foreseeable future, there is ample opportunity for startups and innovation ecosystems around the world to thrive and make their mark in the global marketplace.
Now where the world is seeing India with the ray of hope to foster innovation amid ample opportunities,the turning point here is to see how India’s ‘Make in India’ initiative can play a crucial role in further spreading it,in the true spirit of self reliant India ‘Atmanirbhar Bharat’.