The pandemic induced lockdowns have had a significantly negative effect on India’s economy and have impacted all business sectors. The hospitality sector is no exception. Its revenues decreased drastically due to plummeting sales. The pandemic forced hospitality businesses and food start-ups to re-evaluate their management and operations, even compelling them to revisit their business plans. Now as they slowly bounce back and find their feet again, the businesses in this sector are anticipating more cohesive announcements from the upcoming Union Budget 2023 for a good and fruitful year ahead.

The industry needs infrastructure status

Talking to SME Futures, Jaison Chacko, Secretary General, Federation of Hotel & Restaurant Association of India (FHRAI) talks about granting infrastructure status to the industry. “The industry needs Infrastructure status to enable the hospitality sector to avail of long-term funds under the RBI Infrastructure lending norm criteria. This will enhance quality accommodation supply and therefore, stimulate a higher global and domestic travel demand,” he says.

Although industry status has been accorded to the tourism and hospitality sector by many state governments, the incentives and privileges associated with an industry have not been conferred upon it yet.

Chacko asserts that an industry status will help the sector in setting up a corpus fund to incentivise all the states to align policies and set off any losses that may occur. “Besides that, tourism and hospitality should be placed on the concurrent list of the constitution to make tourism into a national agenda. It will ensure better coordination between the centre and the states for fund allocation and for the implementation of projects and programmes aimed at the holistic development of the tourism sector in the country,” he adds.

Contingency budget for service SMEs

Another challenge for the sector is inflation. Fluctuations and surges in the prices of raw materials and services affects demand and impacts businesses. Vandita Purohit, Founder of Mauji Café hopes that the government will make more of an effort to regulate prices and will keep aside a contingency budget.

“Raw material pricing increases affect us. We cannot change the prices we offer to our customers every now and then. There is growth, but it is minimal because we cannot raise our prices while continuing to serve. If there are certain surges of this nature, I feel that there should be a contingency budget for the small businesses and the service industries,” she says.

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“Currently, the product industry has shifted to the make-to-order model, but the service industry businesses have a lot of bills to pay- rent, services, etc. In case of situations like COVID-19, a recession or rising inflation, there should be a plan in place because it is not worth putting all your effort and investment into a losing proposition and then struggling. If certain funds or schemes are available, people are either unaware of them or find them difficult to access,” Purohit elaborates.

Restaurants owners want tax concessions

According to data, the growth rate of the hotel and restaurant industry has almost doubled y-o-y, making it an attractive option for potential new entrants. Furthermore, with the increasing trend of superfoods and plant-based meats, the players in this industry are hoping that the government’s policies will be supportive of this growth.

However, Tushar Parihar, Founder, Kaner Bagh, a historic boutique hotel, points out that the surge in taxes and the GST has led to a lot of disadvantages for the hospitality industry. 

“The Union Budget 2023 should look at giving some rebates in the taxes so that it’s easier on the pockets of the industry. This will help in increasing tourism, which will help the hospitality sector. The government should also look at investing in tourism hotspots as development in this sector will also help the hospitality sector to grow,” he contends.

Two of the new entrants in this space, Sangram and Prerna Gaikwad, Founders, Zyzzyva – All Day Dining from Pune are anticipating a few announcements from the tax perspective.

“As new entrants in this arena, we have observed that the current tax structure on liquor and food presents a significant challenge for our business. We hope that the upcoming budget will bring in a tax structure that will help the new entrants in the restaurant and food and beverage industry as a whole,” they say.

Adding to that, Pradeep Shetty, President, Hotel and Restaurant Association of Western India (HRAWI) says, “We expect the budget to include relaxations in Section 115JB and a Minimum Alternate Tax (MAT) waiver for two years from April 2023 to March 2025. This will help reduce the tax burden and will provide marginal relief to the hospitality sector. The budget should extend investment-linked benefits under Section 35 AD for brownfield hospitality projects to the on-going capex of hotels and resorts. This will immensely benefit high quality brownfield capex and capacity expansion, accelerating investment and employment in the sector.”

Players also suggest modifying the Leave Travel Allowance (LTA) rules.

“The amount spent on hotel stays should be considered as an LTA expense and payments by foreigners in rupees at hotels should be treated as foreign exchange earned, for the purpose of the EPCG scheme,” elaborates Shetty.

Mehul Sharma, Founder & CEO, Signum Hotels & Resorts says, “The government should work upon making LTC mandatory and should introduce policies and benefits for single female travellers. The government should also work towards incentivising people to travel.”

Lastly, the industry requires a uniform GST of 12 per cent on all hotels across the country, feel the stakeholders.

Long term loans

This industry supports a large number of jobs, and its success has a positive multiplier effect on the economy. Therefore, its stakeholders are anticipating some announcements on funding.

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Sharma of Signum Hotels & Resorts talks about loans, saying, “Give us long-term loans. There is a significant gestation phase in the hotel industry. Which means that it takes three to four years to build a hotel, another two to three years to stabilise, and then the repayment period begins, which is very stressful. Hotel loans therefore have a 15 to 25-year term internationally. The hospitality sector in India should adopt a similar structure as well, as doing so will likely result in fewer NPAs and other such problems.”

Re-introduce input tax credit

Rajat Agrawal, CEO, Barista Coffee Company, speaking about the sectoral expectations from the Union Budget, urges the government to reintroduce the input tax credit to aid the businesses in this arena.

“Today, the non-availability of input credit is the biggest loss for the F&B industry and has a big bearing on the P&Ls as well as on the cash health of the business. Compared to the other industries, the F&B industry stands at a distinct disadvantage. The reintroduction of the input tax credit will not only support the F&B business but will also give a much-needed impetus in the post pandemic years to businesses, helping them to cover up on the financial exposure which they have gone through,” he says.

Revamp schemes

Various government stimulus packages have aided hospitality businesses in many ways. The players in this field are demanding their continuation, albeit with a better mechanism for their implementation in place.

Speaking about this, Shetty says, “The ECLGS loan term should be increased for at least 10 years or as per the loan repayment period of the principal loan, whichever is longer. The industry needs a waiver of the secondary condition with regard to the average foreign exchange earnings under the EPCG scheme, retrospectively from FY2007-08 onwards. It also requires the continuation of the EPCG Scheme, of the service export benefits and export status as well.”

More measures

From the impending budget announcements, the hospitality players are expecting that the government offers some relaxations to them, keeping their rising costs and reduced margins in mind.

Shikhar Veer Singh, Co-Founder, Samosa Singh, says, “The shift in the consumers’ preferences and purchasing patterns, the rising costs and inflation, online deliveries and the change wave induced by the pandemic are further catalysing the demand for some relaxations in the GST percentage. We are expecting some measures by the government to support in the growth and acceleration of this industry, which will lead to the eventual economic boom that we are all looking forward to.”

Another demand of this industry is for skilled workers. Gaikwad says, “With a shortage of trained and skilled workers in the state, we are hoping that the upcoming budget will address this pressing concern and will bring back the workers who had migrated during the lockdown.”

Finally, Agarwal speaks for the industry as a whole when he talks about the need for special Incentive schemes and an easy credit eco-system for the growth of funding in this sector. He also urges everyone to buy and consume more indigenous products as this will go a long way in ensuring the success of the Make in India initiative.