Impact of the Fiscal Stimulus on Startups

                                                                                                 Impact of the Fiscal Stimulus on Startups

In our last post we had talked about the impact GOI’s fiscal stimulus “AtmaNirbhar Bharat”, we would continue with the same discussion and move on the next pedestal by assessing the impact of the fiscal stimulus on startups.

Indian startups have played a unique role in the Indian Economy during the last decade and have surmounted a niche position for themselves in the Indian Economic hierarchy.

Startups :

  • have generated employment in scores,
  • have created value for investors and stakeholders,
  • have bought a predominantly service driven and employee minded population towards a more entrepreneurship driven mindset
  • and have represented brand India around the world with utmost excellence and perseverance.

Indian startups are the embodiment of GOI’s dream of AtmaNirbhar Bharat.

The AtmaNirbhar Bharat fiscal stimulus package does not have a special focus on startups and have rather focused on MSME’s as a medium to channel entrepreneurship in the country.

With changes in definition from rather static investment based towards a more dynamic turnover-based definition and 3 highly focused schemes to infuse liquidity into the MSME’s for the purpose of kickstarting operations again after the COVID-19 induced lockdown and to ensure survivability of these bastions of employment.

Startups are not specially mentioned in the fiscal stimulus, though there is no ruling  which says that a startup cannot register itself under the MSME scheme.

Startups who fall under the purview of the new definitions can register themselves as MSME and can utilise the benefits forwarded towards the sector.

Apart from this as startups which have got/ are eligible to get a tax holiday for initial few years and with the fact that profitability kicks in after a long time, are anyways availing those benefits. Although tax rebates have not been that fruitful for a startup.

Possibly Rebates and deferment of GST and TDS will help young startups to ensure survival with minimum collateral damage.

One aspect of AtmaNirbhar Bharat fiscal stimulus that we can bank upon to provide indirect benefits to startups is the assistance forwarded to the MSME sector itself.

India has a huge MSME sector, spread to the roots of this vast nation. A lot of startups rely on MSME’s to generate business directly or indirectly. With liquidity infusion in MSME’s we expect spill over effect for Indian startups.

For e.g. Bizongo, an innovative packaging company is perfectly located to generate business and revenues once MSME’s bring their production back online and the supply chain is streamlined to incorporate the new normal. In the same manner Hyperlocal delivery businesses like Dunzo is expected to gain from the assistance forwarded to the MSME sector.

India has huge domestic demand base and a lot of that demand is stimulated by a developing and vibrant MSME sector, through salaries and wages for employees, profits for employers and value creation at every step of the way for other stake holders.

MSME chain in India is strong and runs deep with a large MSME base in rural areas thus adding layers of stakeholders to it. Fiscal stimulus focused on MSME’s will stimulate the domestic demand to a certain extent though not as much as it would have in a normal scenario but will ensure survivability of the masses.




Many startups can generate business and revenue from this chain and create value and cash flows for themselves. Agritech, Enterprisetech. Fintech and Edutech are expected to benefit the most out of this spill over effect.

We also expect that the saving led nature of majority Indian households will play an important role coupled with the above-mentioned spill over effect, though this is hard to predict which services and products offered by startups will fall in the household budget hierarchy.

It would be folly to not make broad assumptions here, but we can expect sectors like E Commerce getting a higher share of the household expenditure as spending is diverted from factors which do not comply with the new normal.

GOI has over the years come with innovative schemes like Startup India etc to promote entrepreneurship at both nation wide and respective state governments have come up with their programs and incubation centres to promote entrepreneurship at state level. These schemes are still operational and early stage ventures can still utilise the benefits offered by them.

We expect that the most vulnerable startups are the ones who have recently started generating revenue, have raised one or two rounds of external funding and are expected to stand on the other side of new normal. These budding ventures have costs and liabilities to fulfil, with a slowdown compounded by the change in consumer’s consumption habits and patterns, way ahead for these startups seems quite difficult.

If these businesses are not able to raise fresh funds or are not able to extend their runways, survivability chances are bleak.

Layoffs are an unwanted reality of economic slowdown, nobody likes them but there is not much you can do about them. Unicorn like Ola, Uber, Zomato, Swiggy and Oyo have all had massive lay offs and we expect more layoffs in the coming future.

The reason why these layoffs have come in place is because these behemoth giants of their industries have found themselves standing on the wrong side of the pandemic. We expect Zomato and Swiggy to bounce back in the next quarter or so as the lockdown is lifted. Ola, Uber and Oyo may take some time due to the sudden change in consumer’s outlook towards his/her consumption.

On this note, we would suggest early stage ventures to study, understand and predict the future of their markets to make as optimal as possible strategy decisions for future growth. Dark times could be ahead but it is always darkest before the dawn.

Written by Ayush Dadhich & Manas Vashistha

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