Covid-19 impact: Many startups, MSMEs stare at closure, says survey

About 59 per cent of the startups and micro, small and medium enterprises (MSMEs) in India are expected to scale down, shut down or sell themselves this year due to the impact of the second wave of Covid-19 pandemic, according to a survey by community platform LocalCircles.

The survey said only 22 per cent of Indian Startups and MSMEs have over 3-months of runway. About 41 per cent are either out of funds or have less than 1 month of funds left.

Startups and MSMEs have been in the race for survival, especially since the onset of the Covid-19 outbreak in 2020. India observed the countrywide lockdown from March 24 till September 2020, and the unlocking. After that, there was an imposition of lockdown-like restrictions from April 2021. India’s economy had just started to recover from September 2020 from the first wave of Covid-19. However, the second wave related lockdowns and curfews have an impact on the economy once again. 

“It has brought along very high levels of uncertainty, struggles and challenges for startups and MSMEs to find growth in their business and gather the necessary funds and capital to run their operations,” said the survey.

LocalCircles has been collecting inputs from startups and MSMEs across India to understand and escalate the challenges they are facing with the ongoing pandemic. The motive of the survey is to ascertain small businesses’ current state of affairs, preparedness, and remaining cash flow to run their operation. It also gathered their perception on availing time extension on all Government contracts so they can deliver to terms without incurring liquidated damages. The survey received more than 11,000 responses from over 6,000 small enterprises located in 171 districts of India.

The firms were asked what they have done in the last 2 months, or plan to do in the next 2 months, to get better prepared to sustain their business. The survey said about 49 per cent of startups and MSMEs plan to reduce their ‘employee compensation and benefits costs’ by July to sustain themselves.

The companies were asked about where they see their business future in the next 6 months given the impact of the second wave of Covid outbreak in the country. Only 22 per cent of small firms see growth in their business in the next 6 months. About 59 per cent of them expect to scale down, sell-off or shut down.

The survey revealed that 88 per cent of small businesses need the Government to let PSUs (public sector units) provide price escalation on all MSME contracts where the supply of commodities like steel and copper is involved. About 92 per cent of small businesses want Government to provide a time extension of 3-6 months on all Government or PSU contracts to avoid any liquidated damages to them.