Registration of new companies sees surge during the pandemic

The two waves of Covid-19 pandemic and the consequent business and economic uncertainty did little to dent the entrepreneurial spirit of Indian businessmen.This is evident in the month-on-month new company registrations consistently going up after hitting a nadir in April 2020.

According to the MCA database, the number of new company registrations hit a low of 3,209 in April 2020. It then picked up pace with various phases of unlocking to cross 16,000 registrations in July 2020, possibly due to backlogs and remained above the level till October 2020. The monthly registrations hit a fresh high of 17,324 companies in March 2021 and stood at 10,915 companies in May 2021.

Impact of digitisation

Industrial law and compliance experts attribute the increase in new company registrations to the introduction of GST, e-Way billing system and overall digitisation of the economy which has put undue pressure on informal businesses to come into the formal system to stay afloat.

“The government has digitised the entire GST process and introduced e-Way billing. When everything is digitised, the ability to survey non-compliance improves and the room to play around gets limited. This is putting pressure on the second economy to get into the formal economy,” said Nagaraj Krishnan, MD, Aparajitha Corporate Service Private Limited.

“For a new company to stay in business and work with large corporations, GST has become the basic necessity. If you look at the new companies registered, they are predominantly MSMEs which is a clear reflection of the impact of GST and growing digitisation,” he added.

The total number of companies registered in India as of end of May 2021 stood at 21.75 lakh, out of which 7.61 lakh were ‘closed’. The number of ‘active’ companies went up from 12.05 lakh in May 2020 to 13.65 lakh as of May 2021.

Unaffected by Covid

“Despite the overall impact of Covid-19 on the Indian economy, there are several sectors viz. healthcare, consumer goods and financial services which have remained largely unaffected. Technology-based companies, including start-ups across all sectors, have significantly mushroomed during this pandemic. These form a large part of the new company registrations during this period,” said Jayesh Kothari, Associate Partner, DSK Legal.

Of the 13.65 active companies, business services have the highest number of companies at 4.31 lakh followed by manufacturing (2.76 lakh), trading (1.75 lakh) and construction (1.11 lakh). Business Services include information technology, R&D and other business activities such as law, audit & accounts and consultancy, etc.

“Overall services sector has also been active even during the lockdown period contributing to ancillary services sectors like audit functions, consultancy seeing an increase in new business registrations. The registrations under manufacturing and trading have been slow largely due to the capacity and movement restrictions during the lockdown which have affected their business activities,” Kothari said.

Maharashtra on top

Maharashtra has the highest increase in number of active companies’ year-on-year by 29,416 new registrations. As of May 2021, Maharashtra topped the list of active companies at 2.65 lakh followed by New Delhi (2.18 lakh) and West Bengal (1.33 lakh).

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