Exclusive: Government holds discussion on tax breaks for hospitality sector to revive demand

The government is holding discussions about the possibility of offering tax breaks for a specific period to restaurants and the hospitality sector to revive demand in an industry that took a severe beating in the last few months, a senior official told Moneycontrol.

The Indian hospitality sector has been among those hit hardest by the Covid-19 pandemic and the consequent lockdowns  as restrictions on movement and hygiene requirements kept people indoors and averse to travel or eating out.

"The problem is we also have to see whether people would be willing to eat out now. It's an evolving situation. Now that things are all opening up, we would be able to assess in a few months whether people are warming up to eating out like before," the official, who did not wish to be named, said.

The government would be in a position to announce tax breaks in two-three months after assessing how the demand situation picks up in these few months, the official added.

The government will probably take a leaf out of the UK, which slashed value added tax on food, accommodation and attractions to 5 percent from 20 percent for a period of six months until January 12, 2021.

"We are studying the model that the UK has adopted and will see if something like that is possible to do here. The focus now is how to revive demand," the official said.

While lockdown restrictions have been eased considerably across the country, the months-long closures since the end of March have taken a toll and demand and growth have suffered in consequence. India's gross domestic product (GDP) growth for the April-June quarter contracted 23.9 percent, the steepest drop since records began, against a growth of 5.2 percent in the same period last fiscal.

The Indian economy was experiencing a slowdown even before the pandemic began, growing a mere 4.2 percent in FY20.

To tide over the economic fallout of the pandemic and the lockdown, the government in May announced a nearly Rs 21 lakh crore stimulus package.

"The focus before was to de-clog supply side bottlenecks. Now it would be reoriented to see what can be done to revive demand," the official said.

An expert panel appointed by the Reserve Bank of India (RBI) submitted its report on a resolution framework for stressed assets hurt by the COVID-19 pandemic. The panel, led by veteran banker KV Kamath, recommended financial ratios for 26 sectors that lending institutions can follow while forming a resolution framework. the central bank broadly approved the guidelines.

The 26 sectors specified by the panel are power, construction, iron and steel manufacturing, roads, real estate, trading wholesale, textiles, chemicals, consumer durables/FMCG, non-ferrous metals, pharma, logistics, gems and jewellery, cement, auto components, hotels, mining, plastic products manufacturing, automobile manufacturing, auto dealership, aviation, sugar, port and port services, shipping, building materials, and corporate retail outlets.