Here’s why this is the worst time to be in the business of hospitality in India

So you love a wide spread of smoked salmon, lasagne and a glass of Champagne on your Sunday brunch menu? Now get ready to pay a bomb from July. If you don’t like the continental and want to indulge in chicken biryani and lamb rezala, you aren’t spared either. Government’s much awaited GST (Goods and Services Tax) has brought the axe down on the business of hospitality. Both for the restaurateurs and customers, the recently declared GST rate, which would be effective from July, has resulted in devastation. Moreover, the alcohol ban on the highways has taken a toll on many renowned hospitality destinations and has crippled them to the core.

The ludicrously high GST i.e. 18% for hotels charging Rs 2,500 to Rs 5,000 a room night and 28 % for those pegged at tariff rate of Rs 5,000-plus level and the same taxes for the restaurants would hinder the business like never before. Stand alone restaurants aren’t spared either. Those with air-conditions and liquor license will be charged 18% and non AC ones 12%. For the ones with less than annual turnover of Rs 5 lakh, guests will be charged 5% from July 1.

Compare this to the global statistics – GST charged for hotels in Malaysia is 6%, Thailand and Singapore stand at 7% and Japan 8%. The only country that goes double digit with its GST among the competition is China at 11%.

Dr. Ankur Bhatia, Executive Director, Bird Group, which runs Roseate House in Delhi Aerocity, in an exclusive interview with Business Insider said, he has lost Rs 2 crore of business in last two months of alcohol ban. Losing Rs 2 crore isn’t a nominal amount and makes us ponder how the government could have actually done it better.



Hotels = Jobs

At a time, when the opposition parties have raised fingers at the Modi government for the inability to provide jobs to the youth, it is to be reminded, the hospitality sector provides direct employment to 5.8 million people. And when the alcohol was banned along the highways in the restaurants and hotels, nearly 1 million jobs were curbed.


Hospitality industry = skyrocketing economy

Besides being an essential job creator in the country, hospitality industry has a market worth of Rs 3,09,110 crore, just below Retail and Insurance. Renowned food journalist, Sourish Bhattacharya, on his portal, fears that this high GST would deter local dhaba owners and small food joints to upgrade their businesses fearing too much taxation. At the end of the day, hospitality business is one the verge of becoming service class of the society who takes the burden of all kinds of taxations without much rebate.


Why is high rate of GST horrifying?

“High GST is going to seriously hurt the hospitality business because international tourists will prefer Southeast Asian destinations because of the increase in tax from the current level. India as a destination will further face challenges from inbound tourists from its neighbouring ASEAN countries. When it comes to the competition with our Asian counterparts such as Japan and Singapore where the tax is much lesser, there will be a dropdown in inbound business which will affect the economy of the country,” feels V. Jaiswal, Senior VP – Sales & Marketing, Sarovar Hotels & Resorts.

What goes in the disadvantage of the customers is most eateries will charge 12% even if they are small just to save themselves from taxmen’s red eyes.

“We continue to lose to our competitors in the international market due to these activities.

Unfortunately the situation does not get any better. In any case we have infrastructural issues in the country and as you know India is a far off destination and so on and so forth. We continue to face these issues,” Dr Bhatia told Business Insider.

What motives are ailing the industry?

Alcohol ban impact

“Liquor sale alone accounts for 20-30% share of the total food and beverage revenue. It also impacts the revenue from the meetings, incentives, conferences and exhibitions (MICE) segment, and the room demand segment and will lead to several job losses,” added Jaiswal.


When will the government understand?

If alcohol ban along the highways and high GST weren’t enough, there is a high level of red tapes that tends to derail the industry anytime.

“The red tape bureaucrats today make things difficult by adding onto the business cost, logistics and all other functions of a business get affected. The procedure of getting a license is too long. There are too many departments to get one license cleared thus making it time consuming and delay from the department. This leaves little room for restaurant owners to focus on actually running the restaurant,” Vikrant Batra, Owner, Cafe Delhi heights told Business Insider.

Also India’s millennial city Gurugram and the state that houses it has had its fair share of bad day last quarter when the state government without any thought decided to sell liquor through one distributor across the state. In this case, Neeraj Sachdeva’s Lakeforest Wines is a clear winner having paid Rs 62.5 crore bid amount. Since then, if local restaurateurs are to be believed, the liquor prices have gone up by 59% and given rise to grey market economy.

Where lies the solution?

While Bhatia is positive about various business bodies taking legal steps to make the alcohol ban verdict null, Batra believes,a a single window for the entire licensing process, preferably over the internet handled by the government facilitation agencies would make things easier.