Impact of Product and Process Adoption Strategies on Business Expectations: Evidence from India During the Pandemic

Abstract

Using a unique survey of Indian firms conducted in June 2020, we analyse whether innovating into a new product line or adapting e-commerce platforms improved business outlook. A structural equation framework is used to address the endogenous relationship between six-month advance expectations of key demand (new orders) and supply (labour costs and raw material costs) variables to the two innovation strategies. Innovation strategies are in turn determined by unobservable latent variables, that is, shocks experienced due to the COVID-19-associated national lockdown. Both innovation strategies had a positive and significant impact on demand-side sentiments but had a mixed impact on the supply side. JEL Codes: M21, O31