Even before Prime Minister Modi popularized the beating of thalis as a mark of gratitude for the first responders fighting the COVID-19, the ringing of bells in a restaurant, after a good meal, has always been an accepted gesture of thanking the employees. In these unprecedented times, the moot point is that how many of those bells would still remain to be rung in the aftermath of the economic disaster this humanitarian crisis is inflicting on the restaurant industry in India. Unless an immediate intervention is sought from the government, only time will tell whether this industry has the wherewithal to tide over these difficult days, which threatens its very existence.
According to the National Restaurant Association of India (NRAI), the restaurant industry in India accounts for an annual estimated turnover of Rs 4 lakh crore and employs around 7.3 million people. The very nature of the business being people-specific, it is one of the worst affected sectors, in the prevailing circumstances, with the estimated loss of revenue since March 2020 pegged at anywhere between Rs. 20,000-30,000 crore.
What makes it worse is, even after the lockdown is lifted and assuming all goes well, with the social distancing norms and change in consumer behaviour, it will take anywhere between 12 to 18 months for the sector to significantly recover. The case in point is that even after the complete lifting of the lockdown in Wuhan, China, the restaurants there are struggling to achieve a mere 30 percent of the pre-COVID business. This is tremendous pressure on an industry, which had already been reeling under the stress of a multitude of issues such as demonetization, the rollback of GST input credit, highway ban, sealing drive, aggregator commissions, high rentals etc. plaguing it in the last few years, and is heavily depended on a running cashflow.
Since the underlying ramifications of any likelihood of collapse of the industry are catastrophic with a wide possible domino effect, it is underscored that the central government should consider implementing the following economic and policy measures to mitigate the damage and resuscitate this sector, in the order of their priority:
People Measures
As highlighted, the restaurant industry is one of the single largest employers in the country and it is imperative to continue securing those jobs. With zero/minimum income in the coming months, this is going to be a gargantuan task for the restaurant owners and can only be ensured if an immediate National Temporary Wage Subsidy Plan is rolled out where the government lends a helping hand by covering part of the payroll costs (at least 50 percent) through a Direct Benefit Transfer scheme. This may be partially covered from the surplus funds of the Employee State Insurance Corporation (ESIC) or through a separate stimulus package.
Our government may also take a leaf out of the wage support measures implemented by other countries like US, UK, Canada, Singapore wherein wage subsidies ranging anywhere between 50-80 percent of the salary costs (capped at a certain limit) will be borne by those governments, for the next 3-6 months. The opening up of the PF contribution fund is a welcome move but its scope may also be broadened to cover a wider employee net, for a longer duration and a higher amount limit that can be withdrawn. Additionally, to ease the pressure, the loan moratorium on the personal loans of the employees may be extended for a longer duration with a waiver of interest during this period.
Rent & Utilities Control
The rule of thumb for a healthy restaurant balance sheet is that the fixed expenses which include rentals and employee costs should be in the range of 30-40 percent. The rest is split between variable expenses such as food costs (30-35 percent), utilities and other costs (10-15 percent) and the final store-level EBITDA should be around 15-20 percent. While the variable costs have a direct bearing on the sales and can be controlled, it is the fixed costs like wage bills and rentals that are beyond the control of the management.
Accordingly, it is advocated that an interim Central Rent Control law be passed in the country waiving the rentals during the lockdown and post that (for at least 6-12 months), capping the monthly rentals at a fixed percentage of the current rate (50 percent or less) or as a percentage of the revenues (7-15 percent), whichever is higher. This is a bare necessity to maintain a level playing field in the interests of the landlords and tenants and to avoid multiple force majeure litigations in the country.
Some policy measures may also be implemented to waive or reduce the GST on rental income (currently at 18 percent), property taxes, electricity, gas charges etc., to ease the burden on both the parties. Additionally, restaurants also currently levy a GST of 5 percent on the sale of food and a VAT (varies from state to state, in Delhi it is currently 20 percent) on sale of liquor. Since these indirect taxes are collected in lieu of the services provided by the restaurant, a part of this amount may be refunded in the form of a rental/support subsidy.
Infusion of Working Capital and Extension of Term Loan Moratorium
At least 50 percent of the inventory of a restaurant are perishables and when the lockdown was first announced with a notice of fewer than 4 hours, most of this stock has gone down the drain. Additionally, the payment of salaries during the lockdown when the reserves are already stretched is going to put the restaurant owners in a tight spot even after it is lifted, to restart their businesses. They will also need additional funds to adapt and cater to the new safety and social distancing protocols that need to be strictly adhered to.
Hence it is imperative that an interest subsidized, collateral-free working capital loans (since a large number of restaurants operate out of rented properties) are provided to the restaurants so that they are in a position to open their doors post the lockdown. The moratorium on term loans may also be extended for another 6 months and the interest during this period ought to be reduced or completely waived off.
Deferment of Statutory Dues and Ease of Doing Business
The restaurants must be given an option to defer the payment of all statutory dues for a few months so that they can prioritize their limited resources for sustaining their businesses. The government should also focus on the ease of doing business by relaxing the terms of renewal of licenses for the restaurant industry which is otherwise infamous for being heavily regulated by multiple nodal agencies. Most of the bars in Delhi have already paid the excise license renewal fee upfront for the entire financial year and a part of this amount should be reimbursed on account of the loss of business.
Ensuring Safe and Robust Working Environment & Supply Chain
It is not only necessary to ensure that the restaurants live to the day they can reopen for business but also that they are able to operate in a safe and secure environment thereafter. An exhaustive safety protocol needs to be implemented in this regard for the handling of food in every step of the entire chain from the point of production to the last mile delivery. Otherwise, as evidenced in Malviya Nagar, Delhi recently, wherein, in the aftermath of a pizza delivery boy contracting COVID-19 there has been a 30 percent drop in delivery orders in the entire city, a single unfortunate incident is enough to create a ripple effect of this proportion or worse.
To conclude, there has not been a more challenging time for the restaurant industry in India, to the point that its mere survival is a question now. Unless the government intervenes immediately and brings about positive and transformative changes in line with the suggestions above, it will only be a matter of time until the restaurant industry is pushed to a large-scale bankruptcy. It is posited that there has not been a better time for the government to transform its role from being mere regulators and collector of taxes to a facilitator and partner in the business with its skin in the game. With the right amount of handholding, there is some hope for light at the end of the tunnel and this too shall pass.
-Zachariah Jacob is a lawyer and co-founder of Mahabelly Restaurant based in Delhi. The views expressed are personal
First Published: Apr 30, 2020 7:45 PM IST
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