Nearly 60% Covid-hit startups, MSMEs may scale down, shut down, or sell themselves in 6 months: Survey

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May 26, 2021 10:08 PM

While the government had earlier this month provided a late fee waiver for filing GSTR-3B monthly returns for March and April and reduced interest rates for late payments, MSMEs and startups wanted no penalty and interest relaxations on GST late payment and return filing till June 30, 2021.

41 per cent MSMEs and startups are out of funds or have less than a month of funds left to survive.

Covid-hit MSMEs and startups, which have been reeling again under the second wave following a very gradual recovery from last year’s pandemic impact, are likely to scale down, shut down, or sell themselves this year. According to a LocalCircles survey involving over 11,000 responses from more than 6,000 Startups and MSMEs located in 171 districts of India, 59 per cent startups and MSMEs are expected to scale down or sell or shut down their operations in the next six months. 41 per cent are out of funds or have less than a month of funds left to survive while only 22 per cent have over three months of runway. Also, 49 per cent are planning to reduce their employee compensation and benefit costs by July to sustain businesses.

“With Dept of Science & Technology coming out last week advising that the Covid aerosols can travel up to 10 meters or 30 feet and that surface transmission is also happening, the ‘unlocking’ of 2021 will have to be quite different and more stringent than 2020. It is critical that the government comes out and extends all possible support to MSMEs and startups during this time which includes tax payment deadline extensions, contract delivery date extensions, price adjustments on government contracts and make engaging on government work easier for startups”, Sachin Taparia, Chairman and Founder, LocalCircles told Financial Express Online.

Moreover, 88 per cent small businesses wanted support in government directing public sector units (PSUs) to provide price escalation to MSMEs due to massive increase in commodity prices such as steel, copper, etc. Further 92 per cent sought a three-six months’ time extension to deliver on government and PSU contracts without any liquidated damages.

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While the government had earlier this month provided a late fee waiver for filing GSTR-3B monthly returns for March and April and reduced interest rates for late payments, 89 per cent respondents, based on a survey by the platform of more than 2,400 businesses, wanted no penalty and interest relaxations on GST late payment and return filing till June 30, 2021.

In order to enhance credit flow to MSMEs, the Reserve Bank of India in February this year had allowed scheduled commercial banks to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). Earlier this month, Governor ShaktiKanta Das had extended this exemption, which is currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, till December 31, 2021. Among other relief measures, Das had also allowed borrowers with loans up to Rs 25 crore and who had not availed restructuring under any of the earlier restructuring frameworks including under the Resolution Framework 1.0 as of August 6, 2020, and who were classified as ‘Standard’ as on March 31, 2021, to be eligible “to be considered under Resolution Framework 2.0.”

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