The Narendra Modi-led central government launched Startup India Mission on January 16, 2016 to give new firms, particularly in the Micro, Small and Medium Enterprises (MSME) sector a boost. But five years down the line, startups and MSMEs have said in a survey that cash crunch and Goods and Services Tax (GST) remain major growth hurdles.
The Covid-19 pandemic-hit 2020 was particularly bad for the Indian economy and impacted the MSME sector badly. The government came up with a Rs 3 lakh crore emergency credit line to the MSME sector but the surveyor, the LocalCircles, said these firms “didn’t avail these benefits under the Atmanirbhar Bharat scheme as they didn’t’ have existing debt or loans on their books to qualify.”
“They [start-ups and MSMEs] see funding or loans and finding growth as the top challenge going into 2021. Further 28 percent listed raising funds or loans as top challenges, while another 25 percent are worried about finding growth. There were also 19 percent who said they worry about the survival of their business, and 13 percent maintained bureaucratic inefficiencies as their top challenge in 2021,” the LocalCircles survey said.
With economic recovery starting in September 2020, the uncertainty of new coronavirus strains, as startups and MSMEs adjust to the new normal, finding growth for their business and the necessary funds and capital is seen the top challenge, the survey added.
Cash crunch challenge
Cash crunch remains the top challenge for startup firms and MSMEs. The survey found that “only 31 percent of them have more than three months of cash or runway”.
The figures when further broken down, 27 percent said “1 to 3 months”, 24 percent said “less than a month”, while 21 percent said “3 to 6 months”, and there were about 10 percent who said “more than 6 months”, and 18 percent maintained they were out of funds”.
However, the situation has somewhat improved for startups and MSMEs compared to their financial health in June 2020.
On June 15, 2020, LocalCircles survey indicated that only 16 percent of India’s Startups and SMEs had cash to survive for more than three months, while 42 were already out of funds or in shutdown stage.
Startups and MSMEs continue to demand the removal of GST under reverse charge for services procured from overseas, the LocalCircles said. About 73 percent startups favoured removal of GST under the reverse charge or services procured from overseas as a measure to boost Indian Startups and MSMEs.
The findings from the latest survey indicated that while most startups and MSMEs expect growth in business in 2021, 12 percent of them expect to put themselves up for sale.
On the brighter side, the survey found that 44 percent startups and MSMEs plan to hire workers in 2021. At least 26 percent of the survey’s respondents said they would be hiring 1-5 employees while 10 percent planned to hire 20 or more workers.