Five Lakh Companies Shut Shop Since 2016 That Saw Triple Whammy of DeMo, GST, COVID-19

Delhi: In the last six years, as many as 5,00,506 companies were shut down according to data shared in the Lok Sabha by Union Corporate Affairs Minister Rao Inderjit Singh on November 29. This period, which saw demonetisation, GST rollout and COVID-19 pandemic, also witnessed the constitution of 7,17,049 new firms across the country.

States, where firms downed their shutters in striking numbers, are Maharashtra (81,412), Delhi (55,753), West Bengal (33,938) and Karnataka (27,502).

Interestingly, the spike in the closure of businesses was most drastic in 2017-18, the financial year which saw the passing of the GST bill as also the year that immediately followed the liquidity crisis created by a sudden demonetisation decision by Prime Minister Narendra Modi.

For instance, in Delhi, 45,581 companies closed down in 2017-18, whereas in other years in the last six-year period, the number did not climb beyond 3,000 closures. Gujarat shows a similar pattern, where 11,973 firms stopped operations in 2017-18, whereas in other years the closures were limited to a maximum of 1,585.

As communicated to The Tribune, senior officials in the Registrar of Companies office said that a significant rise had been witnessed in the number of companies being shut over the past few years, whereas, industry sources told the media house that demonetisation and GST affected the revenue of companies in the region, which is dominated by MSMEs. The impact of COVID-19 will be seen in the later months of the current fiscal, they added.

The rapid closure of businesses needs to be seen in tandem with the high job losses witnessed in recent months. As per NewsClick’s report on the Centre for Monitoring Indian Economy’s (CMIE) recent survey, over 2.5 crore existing jobs have been lost between January and May 2021. The bulk of these losses – about 2.2 crore – have occurred in April and May, the period in which India was engulfed in a brutal second wave of COVID-19.

The aggregate unemployment rate jumped into the double-digit category in May 2021 with the average for May being nearly 12%, though the 30-day moving average reported by CMIE was even higher at nearly 13% on 4 June.

Job losses are much higher in the urban areas – in May, urban unemployment was pegged at nearly 15%, four percentage points higher than the rural jobless rate. Urban areas do not have the cushion of farm employment, and urban citizens depend highly on employment provided by private firms of different scales.

The Tribune report provides an idea of the urban sectors where firms were hit the worst in the last six years, which in turn provides a picture of the nature of job losses. As many as 64,449 companies went out of business in the northern region comprising Chandigarh, Haryana, Punjab, HP and J&K. Textiles, garments, hand tools and sports goods were among the worst-hit sectors here. Beginning April 1, 2016, the maximum 33,295 companies were shuttered in 2018-19, followed by 17,398 in 2019-20 and 10,981 in 2017-18.