NRAI writes to the Hon’ble Finance Minister; seeks specific support in the upcoming Union Budget for boosting the Restaurant Sector

NRAI news

NRAI has written a letter to the Hon’ble Finance Minister, Smt. Nirmala Sitharaman seeking certain policy & budgetary support which will propel the Indian Restaurant Industry to an accelerated pace of growth— NRAI has given detailed information about this through a press release.

The Restaurant Industry is a significant contributor to the national economy. Apart from contributing significantly to the direct and indirect tax revenues, it is also one of the highest employment creators in India, currently employing over 7.20 Million Indians directly in the sector. With an annual turnover of approximately INR 4.23 Lakh Crores, the Restaurant Industry, is the third largest after retail and insurance in the services segment.

This industry was one of the sectors that suffered the most during the pandemic. The sector showed great resilience to survive and has since been on a steady path of recovery. With the menace of pandemic now well and truly behind us, the overall Indian economy is on a path of robust growth. NRAI, being the Voice of the Restaurant Industry, therefore firmly feels that if the sector gets a certain amount of policy and budgetary support during the upcoming budget, it will propel the sector towards an accelerated pace of growth. NRAI is confident that not only will this boost the overall size of the sector but it will also generate a tremendous amount of employment opportunities in India.

In light of the above, the National Restaurant Association of India (NRAI) humbly seeks the attention of the Hon’ble Finance Minister on these issues, which will be a tremendous help towards the development of the sector:

  1. Restoration of GST Input Tax Credit (ITC)

It is the only industry to be pegged at 5% GST without availability of ITC; a feature designed to avoid cascading taxation.  The lack of ITC not only reduces the operating margin of the business significantly, it also enhances the capital budget for a new project significantly. This increased Project cost slows down the expansion plans, which massively impacts the overall growth of the sector. 

The industry therefore recommends restoration of Input Tax Credit to the Restaurants while parallelly increasing the rate of GST to 12% from the current 5%. We understand that it may create compliance burden on the smaller businesses and therefore, we feel that this can be done on revenue slabs. While restaurants below a certain revenue threshold can continue with the current GST provisions, the organised sector with higher revenues and CapEx outlay may move towards the proposed GST regime.

  • Reinstating Service Export from India Scheme (SEIS)

The industry generates a substantial amount of foreign exchange for the country through forex denominated credit/debit cards. 

The SEIS scheme has been discontinued recently, and the same is recommended to be reinstated with a duty credit of 10% of the forex earned by the restaurant entities to boost Industry’s growth.

  • Separate Food Services Ministry/Department

We firmly believe that this could change the face of the Industry and add tremendous impetus to the organised growth of this sector.

The huge repertoire and varietal of regional Indian food is one of the biggest soft power that India possesses and is waiting to be unleashed. This can be one of biggest glue to attract and grow the overall tourism into India.

The total market size of our Industry, i.e., INR 4.23 Lakh Crores, constitutes approximately 2% to our national GDP. It is also one of the biggest employers of human capital in the Service Sector. However, one of the biggest stumbling blocks to the sector is lack of a single ministry that can help it grow in a planned and focused manner. It is a highly regulated industry with policy and procedural interventions coming across levels ranging from local municipal authorities to union ministry. This not only goes against the very ethos of “Ease of Doing Business” that the Government espouses but it also leads to problems arising out of conflicting directions coming from different authorities. This significantly enhances the compliance burden, thus negatively impacting the growth.

There are other sectors who contribute much lesser to the national exchequer and employment generation but have dedicated ministries for themselves. This has helped the growth of those sectors.

NRAI therefore requests the Government to create a dedicated Ministerial department for the Restaurant Industry. Dedicated leadership, relevant policy initiatives and focussed growth path can usher in an unprecedented vibrancy to the sector.

  • Grant of Industry Status

Given the immense contribution of the Food Services Industry to the Country’s economy, it should be accorded an industry status.  This will bring in multiple benefits through Central or State industrial policies including easier finance, special schemes, subsidies, fast track clearance processes etc. It will also encourage enterprise as well as entrepreneurship.

  • Reduction of GST on Bagasse and Other Eco-Friendly Materials

NRAI firmly extends support to all efforts towards enhanced sustainability. Use of bio-friendly packaging material for home delivery is one of the most significant steps towards it.

However, currently a higher GST of 12% is levied on cutlery made with environment-friendly and biodegradable bagasse (pulpy fiber extracted from sugarcane juice) for delivery. 

On the other hand, a rate of 5% applies on cutlery made with plastic, thus pushing many small players towards using plastic. In a tight margin food delivery space, this price differentials leads to slower adoption of eco-friendly products. 

A reduction in GST passed will hugely accelerate the usage of eco-friendly packaging solutions.

  • Reduction of GST on Commercial Rentals (Revenue Share)

For Restaurants, rentals form a large part of their fixed expenses and high GST of 18% on this, combined with no Input Tax Credit being made available, is increasing the rental or revenue share expenses by a massive 18%. This causes a major stress on the operating bottom line. 

The Industry therefore requests either restoration of Input Tax Credit on GST or a significant reduction to GST on rentals and revenue share deals to 5%.

NRAI prefers former to the latter.   

  • Rationalisation of Licenses/NOCs

On an average, a restaurant is required to get 15-25 licenses / NOC to open and operate a restaurant. This myriad of licences and permits inhibits food businesses in growing beyond their core geographies and adds to the operational complexity and compliance burden.

As a part of Government’s Ease Of Doing Business, the Industry requests for a simplified and standardized policy across the country which will enable more businesses to explore and plan expansion across geographies creating employment and other network effects for the economy.

Creation of a separate ministerial department, as mentioned in point 3 above, will certainly resolve this problem.

  • Equitable & Fair E-Commerce Policy

The online platforms while bringing convenience have also created concerns regarding fair competition and equitable growth.  Balanced policies and regulations are required to enable a level-playing field where platforms can continue to innovate while restaurants, delivery partners and consumers are protected from potentially exploitative practices.

  • Longer Operating Hours

NRAI strongly believes that enhanced business hours will accelerate the timelines for India becoming a $5 Trillion economy.

Currently, the Industry works under restrictive operating hours fixed by either the local Law & Order authorities, Municipal Authorities or State Excise Authorities. We understand that some of these are state subjects, which further strengthen the needs to set up a separate ministry for the sector as espoused in Point 3 above. 

NRAI is confident that giving freedom of extended operating hours to the restaurants will be beneficial to all stakeholders; the industry for improved business, the Government for increased revenues & employment opportunities, and above all the customers for better choices.

  1. Targeted Subsidy Schemes & Access to Debt Financing for SME’s

The industry requests subsidies on essential ingredients, utilities, and waste management to reduce operational costs for struggling restaurants, particularly in smaller towns and cities.  It is difficult for start-ups to access debt financing from institutional lenders at sustainable rates. 

Subsidized lending will lead to growth in the sector with more and more people able to access financing.

  1. Employee Welfare Plan

The restaurant industry in India employs over 7.2 million and is a heavily labour dependent industry.  Due to the long working hours and mainly physical nature of work, this industry is not the first choice of new generation due to which number of students signing up for professional courses in Hotel Management is declining.

As far as Human Welfare is concerned, currently, there are no special packager welfare funds or pension plans for the employees in this industry.

Therefore, industry requests the Government to introduce some innovative welfare plans funded by the Central and State Government for the employees to support them during their employment and beyond.

Speaking on this subject, Kabir Suri, President of NRAI; Co-Founder & Director of Azure Hospitality Pvt Ltd. says, ‘The growth of the Food Services Industry in India holds immense potential. The industry not only plays a pivotal role in contributing to Government revenue but also is one of the largest employers in the country.  Balanced, fair and equitable policies by the Government with respect to GST Input Tax Credit, Rationalized Licensing norms and E-commerce policy will not only benefit businesses and consumers but also make a substantial contribution to overall economic growth and employment opportunities.’

He added, ‘I hope that the Hon’ble Finance Minister will consider our requests favorably for boosting growth of the industry. I believe that our suggestions for a dedicated Ministry/Department for the Restaurant Industry could be a game-changer, and will lead to an exponential growth of the sector.’

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