Start-ups caught in Covid-19 web

India's economy has been crippled by Covid-19 and the two-month-long lockdown to contain it. However, the impact varies from sector to sector. FMGC, e-commerce and a few other sectors, in fact, gained more traction during the Covid-19 crisis.

On the other hand, aviation, tourism, hospitality sectors, etc., took maximum hit and operations in these segments are yet to come out of the crisis even though the unlocking of the economy has already begun. Sadly, majority of start-ups also fall into this category. A survey released on Monday revealed that 38 per cent of start-ups in India already ran out of funds, up from 27 per cent in April. Four per cent shut their operations till now while another 30 per cent more are left with funds to operate for just three to six months.

The survey which received 28,000 responses from 8,400 start-ups also revealed that funding deals came down drastically. Consequently, over 60 per cent reduced their operating expenses significantly to bring down the overall cost. However, as per the survey, more than 35 per cent of start-ups are of the view that they expect to register growth in next six months.

But given the ever-rising Covid-19 cases in the country, start-ups may go through this pain for a much longer period. A similar survey by software industry body Nasscom also painted a grim picture about start-ups last month. It said that one in three start-ups could face closure as funding dried up. Many start-up entrepreneurs sought some sort of bailout from the governments, but that did not materialise. Of course, the Central government did come out with a Rs 3 lakh crore credit line for MSMEs under Atmanirbhar Bharat Abhiyan package.

But start-ups are unlikely to benefit from this even if they get themselves registered as MSMEs, as the scheme provides extra credit to those companies which already availed bank loans. As start-ups normally rely on venture funds for their survival and growth, not many start-ups went for bank credit. So, the revival package will not be useful for them. In India, start-up culture gained traction in recent years and more and more youngsters inspired by the success of Flipkart and other unicorns started taking entrepreneurial paths. The Centre and State governments also launched initiatives to encourage innovative and promising start-ups. For instance, the Telangana government launched T-Hub incubation centre to handhold start-ups and fuel innovation. Several other States came out with their own initiatives too. All these efforts will go waste if a large number of existing start-ups close down.

That will obviously weigh on the country's start-up ecosystem. Therefore, it is better if governments come out with special revival packages tailored for start-ups. Funding support is essential for many start-ups to survive. So is also the mentoring during these difficult times. Several start-ups will be able to survive the crisis if they diversify into technologies and innovations related to healthcare, online education and ecommerce which have not been impacted by the crisis. For that, they need proper funding as well as handholding. The governments should support start-ups on this front because the start-up ecosystem is essential for fuelling innovation and innovative ideas that our country badly needs.