The coronavirus pandemic adversely affected the entire investment sector in India, but it is the startups that ended up being the hardest hit. The majority of them are experiencing a decline in demand that hasn’t been seen in years, the only exception being providers of popular or essential services. Therefore, startup owners are trying to deal with the situation by paying more attention to innovation & diversification of their business practices.
So, let’s take a look at the effect of the coronavirus pandemic on startups in India & measures needed to be taken by startup companies to survive this turbulent period.
The Effect of the Coronavirus Pandemic on the Startup Market in India
Before the coronavirus pandemic hit, the Indian ecosystem of startups was experiencing an explosive growth. That can be explained, in particular, by the incentives provided by the Indian government & efforts of individual which were aimed at promoting startup growth.
However, the situation has changed dramatically over the past several years. The level of investment has plummeted to a record low, and the decline is continuing at an unprecedented rate. Not only did the coronavirus pandemic negatively affect the startups’ daily activities, but it also made many startup owners cut salaries & fire personnel.
Like with any business, registering startups in India requires investment. Therefore, searching for funding sources is now the main problem that startups are facing.
How Can Startups in India Survive the Coronavirus Pandemic?
Being aware of the problems encountered by startups (both financial & operational), SIDBI has come up with a scheme aimed at assisting startups in India during the coronavirus pandemic. To be eligible for assistance, startups’ owners must meet certain criteria, such as demonstrating their innovative approach amidst the coronavirus pandemic & ensuring their employees’ safety.
Other eligibility criteria include:
- having a staff of a minimum of fifty people
- obtained financing via AIFs investing in startups
- be registered for a period of time not exceeding 10 years
- funding a startup with their own money
Under the scheme, credits to eligible startups will be provided for a period of thirty six months.
After the launch of the scheme, SIDBI received numerous requests from startup owners to ease qualification criteria, making getting assistance more accessible. There were also pleas to expedite the transfer of funds to startups in this time of trial.
Given that, SIDBI came up with new requirements for investing in large corporations to promote the opening of new enterprises.
Regulatory Mitigations Aimed at Offsetting the Negative Consequences of the Coronavirus Pandemic on the Startup Market in India
India’s financial regulator, the MCA, has come up with its own initiative aimed at providing regulatory relaxation for the duration of the COVID-19 pandemic. This includes:
- exemption from payment of fines for late submission of documents
- exemption from fees for holding BoD meetings
- prolongation of a period of time between BoD meetings
- exemption from the requirement for directors’ residency
In its turn, India’s Ministry of Finance raised the insolvency threshold, while the country’s Reserve Bank came up with the COVID-19 regulations meant to reduce debt servicing & mitigate working capital requirements. According to the updated regulations, credit organizations will be granted a 3-month delay for repayment of credits & spared the need to submit certain declarations, such as income tax declaration.
Exemptions provided by the financial regulators made the conduct of business in the Republic of India during the coronavirus pandemic a lot easier. Their primary goal was to reduce the financial burden borne by startups & help them solve problems related to operational continuity.
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