Hospitality sector needs urgent support to survive Covid-19

| Updated on June 11, 2020 Published on June 11, 2020

In the short term, a stimulus package to revive the sector should be announced

The Indian hospitality industry is facing its biggest challenge, one that is far more severe than what the sector had witnessed after the 9/11 terrorist attack and the financial crisis of 2008. The lockdown, induced by Covid-19, has brought the travel and tourism industry to a standstill, with occupancy declining by more than half in March 2020 compared to the corresponding period last year. The revenue per available room collapsed by 64 per cent in March compared to the previous month. Post March, anecdotal evidence suggests a further catastrophic fall in these numbers. Given various travel restrictions imposed by the Indian government as well as governments across the globe, forward bookings for various conferences and leisure travel bookings have been cancelled. In India, most of the summer holiday bookings have been cancelled. As a result, it is estimated that the Indian hotel sector will see its revenue decline by ₹90,000 crore in 2020. India’s hospitality industry was pegged at $247 billion in FY2018-19, contributing 9.2 per cent to the GDP, employing 43 million people and bringing forex earnings of $29 billion — the third-largest foreign exchange earner in the country. A majority of the hotels in the country are unbranded and fall under alternate accommodation, including guesthouses and homestays, thereby offering entrepreneurial opportunities to small-scale business owners. The Confederation of Indian Industry expects more than half of the industry to go sick, impacting nearly 20 million jobs as a fallout of the lockdown.

Globally, many countries have already announced various packages for the hospitality sector, given its importance to their economies. Singapore, for example, has waived license fees for hotels for the rest of the year. Canada has offered a Liquidity Program Option for hotels with deferred income tax payments for six months. Similarly, India’s hospitality sector also needs urgent intervention from policymakers and regulators at multiple levels. In the short term, a stimulus package to revive the sector should be announced. This could include enabling the GST collected to be used as working capital for six months; financial support to enable the sector to continue paying wages in order to prevent employment loss; and relaxation on payouts such as property tax, electricity bills and licence fee for the duration of the lockdown.

As it is, Indian hospitality companies face regulatory constraints, with as many as 100 clearances required from multiple government bodies. The process of identifying new land parcels often accounts for 40-50 per cent of the project cost compared to 15-20 per cent in international markets. The Central and State governments should undertake reforms to ease up these regulatory hurdles for the hospitality industry. For the moment, though, given the sector’s huge employment as well as upstream and downstream linkages with other sectors, urgent and structured support is needed to ensure that players at least manage to survive the immediate crisis period.

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Published on June 11, 2020
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