The Narendra Modi government can utilise this period as an opportunity to cut the red tape faced by entrepreneurs in setting up new restaurants
The food and beverage (F&B) industry in India employs around 7.3 million people. Like several other businesses, even Indian restaurants were severely hit by the COVID-19 pandemic and the subsequent lockdown.
Food delivery giant ‘Zomato’ published a mid COVID-19 report for the concerned sector on 19 August. The study revealed that 10 percent of restaurants have shut down permanently already. Further, it anticipated another 30 percent would not at all.
The hospitality industry was miffed at not finding a mention in Prime Minister’s Rs 20 lakh crore ‘Aatmanirbhar Bharat Package’. But, is that really the case? Hotels and restaurants are eligible to avail loans from the Rs 3 lakh crore emergency credit line guarantee scheme (ECLGS) made available by the finance ministry.
Firms can lend collateral-free amounts of up to Rs 25 crore under this initiative. They also attain a year-long moratorium on principal amount, thus allowing them funds to repay dues or start off operations immediately. As of mid-September, the services sector that comprises of the F&B industry of the disbursed sum under ECLGS.
For six months (March 2020 to August 2020), the restaurateurs were entitled to opt for exemption from paying their EMIs. Last month, the Federation of Hotel and Restaurant Associations of India (FHRAI) had Principal Economic Advisor Sanjeev Sanyal and briefed him on the issues that they are facing.
They addressed the fact that banks are pessimistic on providing them ample loans as hospitality and tourism sector is expected to be subdued for the next 12 to 18 months. The government has launched schemes solely to give credit facility to street vendors and development of fisheries sector amidst other projects during the pandemic. Hence maybe, the restaurant industry is seeking measures specifically directed towards them.
One needs to understand that the public perception towards dining out was very negative in May, when the ‘Aatmanirbhar Bharat Package’ was rolled out. Hence, a response from the government back then would have probably made little difference. People will, arguably, be more comfortable with the thought of dining out as we enter the festive season with Durga Puja, Dusshera, Diwali and the busy year-end period approaching.
In September, restaurants and bars in Kolkata encouraging trends and higher footfalls. Hence, a case can be made for a similar pattern to follow in other parts of the country in the coming months. If the government announces another stimulus package in the coming month, the F&B sector can demand some further financial reliefs in the same. This time around, they will be in a better position to swiftly benefit from such a step than they were in May.
The Narendra Modi government can also utilise this period as an opportunity to cut the red tape faced by entrepreneurs in setting up new restaurants or food joints.
Further, the fee to acquire the license varies from state to state. It is as low as Rs 10,000 in some places (Goa) and up to Rs 56 lakh in Telangana. A consistent pan-India liquor license fee and a fixated short time frame (1 to 2 months) to receive the permit will address the concerns of entrepreneurs to open a restaurant amidst the pandemic.
The government can also consider restoring the GST Input Tax Credit (ITC) for the benefit of small restaurants. What is the ITC? Consider that an owner has to pay a tax of Rs 500 on an item that he serves. He has already spent Rs 300 on the purchase of the raw material for that product. So, ITC states that Rs 200 is the final GST that the restaurateur will pay to the government. This system allows businesses to reduce the overall final payable tax.
In November 2017, the Central government took away away the advantage of ITC from eateries. Restaurants responded by increased the base price of food items.
Right now, most of the restaurants fall under the five percent GST bracket. Last year, the National Restaurant Association of India (NRAI) demanded that restaurants should also be allowed to pay 12 percen GST, provided that they become eligible to attain the ITC.
Such a move allows the owners receive a sizeable working capital based on their overall sale. This can also possibly prompt them to reduce the base price of certain items, encouraging more customers to opt to dine out.
Moreover, rules such as permitting only 50 percent occupancy of restaurants should be discouraged. Several outlets already maintain a safe distance between tables. Instead, one can direct them to separate groups of customers by a couple of meters.
This will work in favour of eateries that are already spanned across considerable spaces. Cramped restaurants could be individually asked to alter their seating arrangement and make necessary adjustments.
Not all is lost for the Indian F&B sector. Some immediate relief coupled with measures to ease their approach towards doing business can arguably instill some optimism and confidence in the market.
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