The F&B industry generates 3 percent of India's GDP, underlining its strategic importance. More than 7.3 million people in India rely on the F&B sector for their income. This makes F&B the single-largest employer in the country. F&B also acts as an engine for several other sectors of the economy, including transportation, retail, hospitality, services, and agriculture.
Before 2020, the F&B industry was growing exponentially, but the pandemic and the lockdowns have dealt a blow pushing scores of F&B businesses to downsize or completely shut down overnight. Millions of workers were rendered jobless.
When Finance Minister Nirmala Sitharaman presents the Union Budget on February 1, the F&B segment is looking forward to several measures to restore growth. The sector's top expectations are:
Policy changes to support the F&B sector
According to the National Restaurant Association of India (NRAI), the first two COVID waves took a severe toll on the sector, with approximately 25 percent of restaurants shut in 2021 and more than 24 lakh people losing jobs. With a fresh wave and a new variant clawing its way, the F&B sector is, yet again, facing uncertainty. However, the right nudge from the government can help the industry revamp itself steadily.
Noting the F&B sector's critical economic role, the Indian government has already taken several steps to revive the F&B industry. However, three significant elements that will accelerate the industry's resurgence include further easing the restrictions on loans to businesses, offering incentives or grants, and effective tax relief.
Double Taxation: A game-changer
When restaurants supply through another vendor or an e-commerce aggregator, the input tax credits are not allowed to the aggregator. This causes double taxation for supplies to B2B. This situation has been addressed by the recent rules brought under 9(5) in GST. However, the industry would greatly benefit if, following the ruling on Indirect taxes, the Direct Tax dept would clarify TDS deduction applicability. Further, queries that would arise after the changes proposed in GST should be addressed.
Reduction in corporate taxes to boost investment.
The government of India has undertaken a staged reduction of corporate tax. These cuts can prompt an increase of up to 10 percent in the profit margins for businesses. This will lead to high-yielding companies expanding on the back of scaled-down tax flow. While it may be true that the government ends up losing more than Rs 145K crore every year by cutting down on taxes, the decision has several positives boosting economic growth employment, and improving foreign investments inflows. We expect the government to accelerate its game plan and create further opportunities for the F&B sector to grow.
Simplifying MSME loan disbursements
Over the last two years, the challenging economic environment has meant several MSMEs in the F&B space are looking for more accessible loan options. However, banks traditionally fast-track loan approvals for asset-intensive MSMEs, while those in the service sector have to overcome countless obstacles. Banks are directed to keep non-performing assets (NPAs) to a minimum, so they often approve loans to MSMEs who may be profitable. This might give an impression of a safe choice for banks, but this approach is detrimental to spurring entrepreneurship and innovation. We expect the government to tailor MSME loan disbursements for the service sector. Rather than being forced to choose between a high-risk or low return option, banks should find a middle ground and identify new criteria. For instance, instead of restricting loans to collateral value, banks should consider billings of the last three months and the overall ticket size of customer transactions.
Road ahead
A few fundamental policy changes initiated by the government will enable the F&B sector to fill in the cracks left in the wake of the pandemic. While the government is already encouraging investors to back Indian players, we are hopeful that the upcoming Budget will ignite a new spark for the industry's revival and provide a much-needed boost for domestic F&B operations.
(The writer is COO and Co-Founder, HungerBox-technology platform)
