global average of 19%. Although smaller firms are more affected, they have the least access to public support. This is also true for other groups such as firms that are women-led and non-exporters, signifying the potential role of business networks in accessing support and dealing with the shock. Both globally and in South Asia, lack of information and awareness of public support measures seem to be the main hindrance.

_Finally_ , as the impact of the crisis varies widely even within the same size and sector groups, these categories make imprecise targets for effective interventions. Our findings suggest that only 20% of the variation in sales change can be explained by size and sector groups. The type of shock suffered by the firm - demand shock, production or supply chain disruptions, or financial shock - explains most of this variation. We conclude by providing a framework for customizing policy support that seeks to understand the dominant shock that impacts a firm within size, sector or other external attributes widely used for targeting firms.

This remainder of the paper is structured as follows. Section 2 compares the impact of COVID-19 on the operation status, sales, financial fragility, and expectation in South Asia relative to other regions and income groups. It also reflects on the heterogeneity in the impact by size, sector, gender of owner and exporter status. Section 3 delves into the margins of adjustment undertaken by South Asian firms in response to the pandemic. Section 4 discusses the possible policy responses and provides a framework for designing appropriate policy interventions to help resilient recovery of South Asian firms. Section 5 provides the conclusion and policy implications.

# **2. How is COVID-19 impacting South Asian firms?**

Unlike previous large shocks that weeded out good and bad firms alike (World Bank, 2011; Foster et al., 2016; World Bank, 2020c), the COVID-19 outbreak and the consequent economic collapse may not affect all firms equally. The effect may vary based on external attributes such as size, sector, and the gender of the owner but also by internal characteristics such as productivity, export-orientation and management practices that can potentially make them resilient to specific shocks brought about by the global pandemic. This section assesses the impact of the pandemic across the following dimensions: operation status and sales, financial fragility, and expectation and uncertainty.

## **2.1 Operating status and sales**

The pandemic has already caused massive disruption among firms in the South Asia region (SAR). The top left panel of Figure 1 presents the region fixed effects generated from the Probit regressions on the probability of a firm being open (or partially open), controlling for several key factors - the number of weeks after peak, firm size, subsector, income groups, stringency index (as measured by the Oxford COVID-19 tracker), log of population, and population density.<sup>4</sup> Our estimates show that only about two-thirds (66%) of the firms in SAR were operating at the time of the survey.<sup>5</sup> This

> 4All estimations in this paper control for these factors unless otherwise stated. The estimated fixed effects translates to the average predicted outcome within a particular group. Although India is included in the regional averages, we do not separate out specific figures for the country. Stringency data is available at: https://covidtracker.bsg.ox.ac.uk/ 5The results on operating status should be interpreted with caution because it is measured based on the firms that surveying companies were able to reach at the time of the interview.

4