Coronavirus crisis: Lower demand hits small businesses, startups hard; cost-cutting likely ahead

By: |
March 22, 2020 4:34 PM

In order to deal with the negative impact of the Coronavirus, businesses will cut down on discretionary expenses, reduce employee costs etc.

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The Coronavirus is having a detrimental effect on the health of startups and small businesses in India as many of them are staring at crippling business services ahead. For instance, 71 per cent of startups and small businesses in India are witnessing lower demand for their products and services while 48 per cent are experiencing supply disruption or increase in supply costs, said a survey of 35,000 startups, small businesses and entrepreneurs by the community social media platform LocalCircles. Over 18,000 responses were received in the survey.

In order to deal with the negative impact of the Coronavirus, 63 per cent respondents said they will cut costs which included cutting down on discretionary expenses, reduce or exit non-essential supplier projects and reducing employee costs. “Some startups and SMEs have reported the exercise of Force Majeure clause by their customers and getting out of a contract. Others are reporting postponement of deliveries by Indian and global customers. Some SME exporters have reported being unable to find containers to ship as they are stuck at ports around the world,” the survey said.

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Industry body Assocham had last week suggested government several measures to help MSMEs cope with the current situation such as concessional working capital loans for MSMEs equivalent to one to three month’s (based upon the extent of disruption) average turnover of last year. Assocham also asked the government to extend the period for payment of utility, GST and other statutory payments by three months without any impact on the businesses’ credit history.

According to the survey, startups and small businesses are also looking at reducing costs with respect to the workspace, operation etc. as 30 per cent respondents said they would reduce their expenses on office rentals, operations along with marketing or advertising costs. However, 37 per cent said they won’t take any action as there has been no impact on their businesses because of Coronavirus.

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