The country’s strict lock down, which started on March 23rd 2020, has a huge economic impact, with lead to downfall of many small businesses. With GST compliance issues, demonetization and low domestic demand already playing a spoilsport, the virus has only added sorrow for small businesses.

More than 95% of all businesses are small and medium businesses in India. The forecast indicate that more than 5 million workers could lose their jobs during pandemic. There is also a possibility of “Startup depression,” where the new companies don’t enter the job market because of the pandemic.

Fate of small businesses estimated in next 6 months

How Corona-virus is impacting Small businesses

The smaller the company, the harder the hit, with companies with fewer than 20 employees most affected. Why? Because small businesses with less than 20 employees typically lacks cash flow and capital.

Over 80% of India’s small businesses expect to scale down, shut shop, or sell off in six months

To what degree has corona virus negatively impacted your business
  • Lack of good benefits

Big companies like Google have their standing in the global market for the employees as they have more benefit packages like paid time off, help for general health and wellness, to compete, small or medium businesses will need to offer the same. At the same time, the production is shut and the supply chain disruption can occur as workers are being affected by virus.

  • Consumer Uncertainty

People are worried about their future, their jobs, and what is going to come next. Any of the big projects which are active are likely to come on hold. This will impact small stores, contractors, businesses etc.

  • Lack of funds

The MSME sector employs over 110 million Indians and contributes nearly 30% to India’s GDP. The proposed Rs10,000 crore Fund of Funds can realistically pay salaries of only 5% of the total employees, if we consider Rs 20,000 average monthly salary. This clearly indicates that the small businesses still need to work hard to ride out the storm on their own and those who will wait for government help are tend to die sooner. To take one example, the food services industry employs around 7.3 million people and as restaurants and commercial kitchens stay shut, they will find it unable to pay their staff. Worse, they may struggle to even keep them employed. In such times, protecting and preserving the well-being of micro and small businesses ought to be a national economic priority.

Which Small Businesses are most Impacted?

Which small businesses are most impacted

Yes – Percentage of impacted businesses

No Percentage of businesses which  are not impacted

Not sure – Percentage of businesses which are not sure on how it is impacted

According to a survey of more than 500 businesses, small businesses were most impacted. The most affected are personal service, hospitality and retail.

Has Covid-19 negatively impacted your business?

Help for small businesses during COVID-19 pandemic

  • Union Minister for MSMEs Nitin Gadkari has announced the possibility of a Rs10,000 crore ‘Fund of Funds’ for MSMEs with high credit rating.
  • Congress passed the Corona virus Aid, Relief, and Economic Security (CARES) Act to minimize the impact of the COVID-19 pandemic, which includes Paycheck Protection Program (PPP) designed to provide small businesses with support to continue to keep their workers on the payroll.
  • Small businesses who have taken loans under the MUDRA-Shishu scheme, meant for loans worth ₹50,000 or less, will receive a 2% interest subvention relief for the next year, which will cost the government ₹1,500 crore.
  • The Center plans a drive to enroll 2.5 crore farmers who are not yet part of the Kisan Credit Cards scheme, along with fish workers and livestock farmers, and provide them with ₹2 lakh crore worth of concessional credit. NABARD (National Bank for Agriculture and Rural Development) will also extend additional refinance support worth ₹30,000 crore to rural banks for crop loans, Ms. Sitharaman said.
  • Small businesses are looking for relief in the form of direct cash payments or fundraisers (56%), disaster loans (30%), and temporary cancellation of business payroll taxes (21%). There are plenty of fundraiser platforms raised for small businesses, such as Ketto, which help you in raising funds.

How can your Small Business survive the COVID-19 pandemic?

Big businesses survive better, however small businesses only live with little cash flow and it will be devastating for the business owner to support their employees during this pandemic.

Here are a few tips:  

  • Ease of Doing Business

This can be difficult especially when cash is running out, but remember to take care of yourself in a way that works for you- for instance, eat well, and try to get some exercise. A healthy mindset is required to come up with innovative ideas. Take time to balance yourself, sometimes taking a step back to reassess, asking for trusted opinions, and also keeping perspective will help. You are not alone in this, be strong!

  • Dive into resources provided by government and financial institutions

India has announced plans to spur small and medium businesses as part of a $266bn economic package. To resume business activity and safeguard jobs an emergency line of collateral free loans worth $40bn was included in the package.

Ms Sitharaman said “The intention is to build local brands and make them world class. It’s not (about) looking inwards or (being) isolation list. It’s (about a) confident India that contributes to the globe.”

Be up to date with how your governments can help cut costs, as well as other important institutions, such as banks that also have a social stigma.

  •  Be Proactive and Be Fast

SMEs that are proactive or respond fast will win. Having said this, those inherently weak in their competitive position will find it difficult to survive regardless of speed.

  • Get used to the lasting Effects of the New Normal

People learned to do business in different ways. Maybe in your business everybody used to come to office to meet; now you can use video conferencing. The meeting between staff, clients and management are virtual and that’s something to do out of necessity and it may continue in the future.

  • Make a strong financial plan

Your huge costs would usually be your staff and your office rent. You could perhaps freeze hiring any more full-time employees, and instead work on a project basis with freelancers. You could also consider downsizing your office, and using a co-working space to have more affordable and flexible payment terms. Speak to people you may support to have an open and honest discussion about your plans for business how to control your personal spending for few months, what costs are necessary, what can be put on hold.

  • Look out for opportunities

These events can be a wakeup call on how you are doing your business. How do you expect your customers to behave moving forward? How can you accommodate who will likely be a new type of customer? What did I learn from this? Can you digitize any of your products or services, and start offering them online? Can you apply technology to balance any loss of earnings by offering new ways to connect with your customers?

  • Guide your staff

Try keeping your staff, you need them and they rely on you. Tell them there are plenty of affordable online classes available and have an up skill while working from home. They can easily learn about scenario planning techniques via online videos

  • Having a responsive and effective web and social media presence

Employers who lack the resources and expertise to do so should consider hiring someone part-time to lay the groundwork for such a presence.

Post-COVID business opportunity

  • Prime Minister Narendra Modi held a meeting on April 30 to develop a strategy to attract FDI, particularly foreign firms wanting to move out of China, to boost investment. In fact, the Indian government is reportedly in the process of identifying and developing 4.6 lakh hectares of land, including 1.1 lakh hectares of existing land in industrial areas, and planning fiscal incentives in the form of preferential tax rates, tax holidays etc in order to attract foreign firms. Further, a few state governments are also proactively working to capitalize on the opportunity.
  • FDI will not only augment capital formation, it will also act as a vehicle for technology upgradation, skills development, exports promotion, job creation and the improvement of overall competitiveness of the economy. This is an opportunity for India in the post-Covid era. If we grab this opportunity, the next 30 years would belong to India at the global stage.
  • Someday, the corona virus scare will die and new business model, innovations will evolve. The nation will depend on its small business communities for the economic recovery.
  • The adaptable entrepreneurs will restart their operations and the rest will keep blaming the virus, government, competition etc rather than picking up corrective measures.
  • With a proactive approach and a bit of readiness, India’s MSME sector will once again get the GDP engine humming. For a number of business owners, this will be again an once-in-a-lifetime opportunity.

3 Things government must do to save India's Small Businesses

Few states like Delhi and Uttar Pradesh have warned businesses that all employees and contractors should be paid irrespective despite not coming to work during the lock down.

Where are businesses supposed to get the money to pay salaries, if factories and workshops are not operational?

  1. Wage reimbursement for Small and Medium Businesses.
  2. Access to Loans for Small Business

The Government already has a 2% interest subvention scheme for small and medium businesses. A subvention scheme is one in which the government pays part of the interest. However, it is under-publicized and most businesses don’t know about it. Also, 2% is too little since SMEs borrow at much higher rates of interest. The subvention can be scaled up and made around 6% so that rates of borrowings of small businesses and large corporate become comparable.

  1. GST deferment 

It would greatly help if GST payables over next 6 months can be structured into a 3-year interest-free loan. This will mean business will be able to use the GST collected for their business requirements, and gradually pay these dues.

The impact of corona virus on small businesses will be huge. It will change the way we move, shop and do business, and it could even reverse the trend of globalization. What will happen next? Unfortunately for businesses, it’s still a matter of waiting and seeing.

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