Startups want the government to permit deployment of CSR funds into social impact startups and give relaxations on direct and indirect tax, according to the LocalCircles survey.

Business leaders huddled together and discussing graphsImage for representation / Picxy- Chokniti
Atom Startups Thursday, May 27, 2021 - 19:17

Amid the second wave of the ongoing pandemic, 59% of Indian startups and MSMEs expect to scale down, sell off, or shut down in the next 6 months, while only 22% of startups and MSMEs will see growth in their business in the next 6 months, according to a survey by the community and social media platform LocalCircles. It is likely that the startups which see growth are involved in online sales and services, health and FMCG, or digital payments sector, many of which have seen an uptick in demand during the pandemic, the survey notes. 

Further, only 22% of startups and MSMEs have over 3-months of runway, while 41% are either out of funds or have less than one month of funds left. As per the survey, 49% of startups and MSMEs plan to reduce their employee compensation and benefits costs by July to sustain themselves. The survey received more than 11,000 responses from over 6,000 startups and MSMEs located in 171 districts of India. 

It also said that 88% of small businesses need the government to let PSUs provide price escalation on all MSME/small business contracts where the supply of commodities like steel, copper, etc., is involved. Many MSMEs have specifically outlined how they have been struggling with rising prices of commodities like steel and copper since mid-2020. Many of those working with the government and the public sector undertaking (PSU) units are struggling to service contracts as prices have risen far beyond projections. One of the key demands that MSMEs have listed out is the need for price adjustment /escalation provided to them on government and PSU contracts, according to the survey. Similarly, last year due to the lockdown, the government had offered an extended time window of 3-6 months to MSMEs on government and PSU contracts so they don’t face liquidated damages due to COVID-19 lockdown /curfew related delays. And 92% of the small businesses want the same benefit extended this year as well.

Startups want the government to permit the deployment of CSR (Corporate Social Responsibility) funds into social impact startups. “The second wave of COVID has made many realise the need for more startups that are socially oriented in areas like emergency assistance, community engagement and mobilisation, health equipment support, etc. These startups have never been funded by traditional venture capitalists in India and hence largely non-existent. Enabling CSR funds to become available will enable many startups that are in early stages to scale up,” LocalCircles says. Similarly, startups want government procurement and payment norms to be made easier so that they could engage with government bodies and provide their products and services. They also want timely relaxation on direct and indirect tax. “At a time when almost all major states across India have imposed lockdowns and curfews, it is just not practically possible for most small businesses to make their tax payments and file their returns. A time extension will go a long way and enable them to chart a recovery and sustainment plan,” LocalCircles adds. 

LocalCircles said it will be escalating the findings of this survey with the key central government Ministries of Finance, Commerce and MSME so that they are aware of the situation on the ground and necessary actions can be considered to provide much-needed support.