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Photo: Bloomberg
Photo: Bloomberg

Businesses need comprehensive government support for their survival

  • A wage bill subsidy, tax concessions, a waiver on GST and unemployment doles for six months could enable the survival of businesses and mitigate job losses

The covid-19 pandemic has made the worst possible nightmare of every business come true. While the Indian start-up ecosystem was already coping with the growth pains of the economy, the pandemic has put survival of many into question. Sectors like travel, fast moving consumer goods (FMCGs), restaurants, hospitality would be lucky if they survive these times.

While revenues are bound to fall, cash collections are under a bigger threat. “I would be more into managing cash flows than booking revenues," said an edtech-entrepreneur. Another venture capitalist who is into investing in sustainable business models hopes the world will start looking at valuing risk-adjusted businesses better. In an age where even debt instruments are risky, he feels start-ups with sustainable business models would be re-rated. A fintech entrepreneur said, “It is more about managing the balance sheet than the [profit and loss account]. Most companies will die because their balance sheets weren’t managed and they ran out of cash than the fact that they were unprofitable." Uncertainty around the global economic landscape, changing dynamics, national priorities and sectoral failures have all multiplied the nervousness. “All we can do is informed speculation. And most times, we are only able to react to the events than plan for such a massive event," said a founder of a SaaS start-up. “The world economic order would be categorised into before corona and after corona."

It is a given that the consequences of the pandemic would be disastrous for the global economy. The start-up ecosystem would reel from the cascading effect on the funding environment, revenues and growth. Most CEOs expect layoffs and salary cuts to be the norm than an exception. “In most cases, it is the only way to survive. In some cases, it is to face an uncertain and possible brutal business environment," said another entrepreneur. And everyone is hoping and waiting for a government intervention and incentive for at least six months that can be a ventilator to start-ups that are already gasping for breath.

Many countries including France, Canada, Germany, and the UK have announced packages to ensure that the wheels of the economy don’t come to a grinding halt. Some of these countries are spending almost 15% of their GDP to fight this war. And India, with its massive population to feed and 495 million labour force, cannot

afford to fall short of ammunition. The 1.7 trillion package falls woefully short of what is needed to keep the engines of India running. A long-term policy and aggressive implementation is needed to battle the virus, keep the marginalised population fed and ensure that the industry survives the lockdowns and the uncertainty. Already, a 30-day lockdown would have caused a $240 billion loss to our GDP. Other countries have been far more willing and created war rooms to plan and execute a well-coordinated strategy for healthcare, unemployment doles and industry. Countries are supporting industry in terms of wage bill subsidy, tax write-offs, tax concessions, deferments, and redrawing rules that enable industry survival while mitigating job losses. What can India do to support the industry, the service industry and the start-ups?

Here is a wish list compiled after speaking to many entrepreneurs.

One, a 50% to 100% waiver on GST for various sectors for at least six months. The 18% GST on the service industry was always punitive and this is the time to moderate it. In the absence of input credit for much of the costs, this will come as a breather. Besides, as cash flows are stressed, make sure that tax is collected not on accrual but after receipt, as most vendors are likely to extend and even default on payments.

Two, by invoking the Epidemic Diseases Act, salaries/wages of all employees/workers were protected. This isn’t even a short-term solution and the employees would be laid off unless supported. The government must incentivise job protection by taking a part of the load on itself. At some point, friendly labour laws will ensure job creation too. An unemployment dole for six months may be the way out.

Three, bring income tax rates to zero. As salary cuts are most likely, the tax component can be a much-needed relief to ensure employees keep getting the take home that they were getting earlier.

Four, ensure that the government takes the burden of employer’s share of provident fund, Employees’ State Insurance (ESI) payments beyond the current level of 15,000 gross salary. The current rule of 90% of employees getting not more than 15,000 gross salary for an establishment to avail the state subsidy leaves very few companies benefitting from the move. The limit must be raised to at least 60,000 per month.

Five, ensure a friendly tax administration and capital market to enable fund-raising, buybacks, M&As, etc, so that start-ups are still attractive for investments, survive and even consolidate when needed. Survival should not be at the mercy of complex and discretionary tax laws that kill the golden goose.

Six, the government must ensure that all tax refunds and vendor payments are processed within 30 days and credited back to parties. This will inject cash in a system starved of it.

Seven, a six-month tax payment deferment should be provided with no interest. It is far better that the government takes a loan from the central bank than force start-ups to seek loans from commercial banks.

Eight, adjust all security deposits and advances – rent, security, vendor, tax – against payments to be made.

These are tough times and need a war-like response. Indian industry cannot see through these times unless the government believes in their contribution and is concerned about their survival. Supporting industry is no longer an option but a dire necessity.

Maheshwer Peri is founder and chairman of Careers360.

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