Corona has sent food services industry in a spin

Perhaps, no other industry has been so badly scarred as the food services industry and the related tours and travel industry, due to Covid-19 pendamic. The Reserve Bank of India has announced its moratorium of three months for repayment of loans and EMIs but will that be enough to revive the sector?

corona-has-sent-food-services-industry-in-a-spinAccording to a PTI report, in the last two weeks of March, popular hangout places, which would otherwise be at full capacity, especially during weekends and ladies’ nights, have experienced a steep fall in their customer base, with people avoiding crowded places and choosing to stay at home.

The National Restaurant Association of India recently pointed out that in-restaurant dining had witnessed “an approximate business drop of 30-35 percent”. Anurag Katriar, President of NRAI speaking to PTI said that “there has been a definite impact of the epidemic in the overall food service business, with various segments being impacted in varying degrees…In-restaurant dining is also seeing a big impact…with the restaurants located within mall premises recording a sharper drop.”
 
Reacting to the sharp fall in the restaurant business, the Federation of Hotel and Restaurant Associations of India (FHRAI) has appealed to the Prime Minister seeking some exemptions for the sector: a complete GST exemption for the sector for a duration of six-months and a relaxation in loan repayment. Also, the association has also asked for a reduction in the bank interest rate for the hotel industry by almost 200 basis points with a full transmission for working capital purposes. With an eye on the loss of the tourism verticals that have been severely affected with the virus outbreak as the members of tourism verticals have reported cancellations of up to 90 per cent. The industry body has also sought deferment for fiscal statutory compliance deadlines such as payment of direct or indirect taxes.
 
The letter from the FHRAI to the Prime Minister highlighted the fact that the Covid-19 outbreak had affected hotel bookings drastically. While the hotel bookings have been minimal, all celebrations, weddings, meetings, incentives, conferences and events (MICE) business, room reservations and wellness sectors have been adversely affected. According to the letter by FHRAI, “The hospitality industry is one of the biggest employment generators of both direct and indirect jobs and therefore the industry has to take care of a large number of employees.” It goes on to mention that the “hospitality industry requires a lot of working capital to pay taxes such as advance tax and GST. A lot of hoteliers have also taken loans to construct and run their establishments and in such a state, adhering to the one-time payment of EMIs or the repayment of loans seems an onerous.” The association has also requested for a meeting with the Prime Minister.
 
Said Sanjay Kumar, MD & CEO of Elior India said, “India on the curve for the spread of the pandemic is still lagging the rest of the world which is good news. But having said that, it is probably a given that we will see an increase in the number of cases in the coming months.”
 
“The bigger concern would be for the small and medium enterprises to which banks traditionally have not lent money. So, we are going to see a huge working capital crisis in the small and medium enterprises because work from home has kicked in most offices and that has resulted in a significant drop of sale of food at the office cafeteria,” he added. “Most corporate offices are seeing between 20 to 30 per cent of the normal volume of business that they would have been seeing even three weeks ago. So, the hit across the food services space is going to be significant,” Kumar said.
 
Speaking about industry expectation from the government, he said, “What the food industry would expect from the government is more on the fiscal side which is to enable consumption, bring in the input tax credit which was abolished about two years ago so that the value chain becomes more organized compared to what it is currently.”
 
The Reserve Bank of India (RBI) has announced that all banks and NBFCs have been permitted to allow a moratorium of three months on repayment of term loans outstanding on March 1, 2020. The Economic Times pointed out: “Prima facie, the 3-month moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI instalments during the moratorium period. Going by the RBI statement, availing such a moratorium would not also not lead to a down grading of the borrower's credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any financial penalties or increase in interest rate or charges beyond the existing terms and conditions of the loan. Under normal circumstances if loan repayment is deferred then the borrower's credit history and risk classification of the loan can be adversely impacted. However, in case of this moratorium the borrower's credit rating will not be impacted in any way, as per the RBI statement.”
 

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