LocalCircles Survey Identifies GST and Cash Crunch As Major Hurdle for MSMEs' Growth

Five years have passed since the government launched the Startup India Mission to boost Micro, Small and Medium Enterprises (MSMEs) and startups, but a survey revealed that cash crunch and Goods and Services Tax (GST) remained a major challenge for them.

According to a survey by LocalCircles, Cash crunch remains the top challenge for startup firms and MSMEs. The survey found that “only 31 per cent of them have more than three months of cash or runway”.

The figures when further broken down, 27 per cent said “1 to 3 months”, 24 per cent said “less than a month”, while 21 per cent said “3 to 6 months”, and there were about 10 per cent who said “more than 6 months”, and 18 per cent maintained they were out of funds”.

However, the situation has somewhat improved for startups and MSMEs compared to their financial health in June 2020.

When it comes to GST, the survey claimed that Startups and MSMEs continue to demand the removal of GST under reverse charge for services procured from overseas.

''About 73 per cent startups favoured removal of GST under the reverse charge or services procured from overseas as a measure to boost Indian Startups and MSMEs,'' said the LocalCircles.

The findings from the latest survey indicated that while most startups and MSMEs expect growth in business in 2021, 12 per cent of them expect to put themselves up for sale.

However, the survey also found that 44 per cent startups and MSMEs plan to hire workers in 2021. At least 26 per cent of the survey's respondents said they would be hiring 1-5 employees while 10 per cent planned to hire 20 or more workers.

The survey further said that although the Cabinet approved Rs 3 lakh crore emergency credit line to the MSME community, a large number of startups and MSMEs didn’t avail these benefits under the Atmanirbhar Bharat scheme as they didn't have existing debt or loans on their books to qualify.

MSMEs and startups see funding or loans and finding growth as the top challenge going into 2021. Further 28 per cent listed raising funds or loans as top challenges, while another 25 per cent are worried about finding growth.

''There were also 19 per cent who said they worry about the survival of their business, and 13 per cent maintained bureaucratic inefficiencies as their top challenge in 2021,” the LocalCircles survey added.

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 are seen as the top challenge, the survey added.