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FM Sitharaman's MSME bailout elicits mixed reactions from restaurant industry

Restaurants sector has been particularly hit during the lockdown since food services are not allowed to operate. This has badly affected the finances of the sector, including both organised and unorganised players

twitter-logoManu Kaushik | May 13, 2020 | Updated 20:49 IST
FM Sitharaman's MSME bailout elicits mixed reactions from restaurant industry

The restaurants industry, which was looking forward to the Rs 20 lakh crore stimulus package announced by the Prime Minister Narendra Modi on Tuesday, has been partially relieved today as Finance Minister Nirmala Sitharaman gave out details on the measures for micro, small and mid-sized enterprises (MSMEs), non-banking financial companies (NBFCs) and real estate sectors.

Restaurants sector has been particularly hit during the lockdown since food services are not allowed to operate. This has badly affected the finances of the sector, including both organised and unorganised players. Anurag Katriar, president of industry body National Restaurant Association of India (NRAI), says that the collateral-free loans of Rs 3 lakh crore that are offered to MSMEs will improve the working capital requirements of the restaurants. These loans come with one-year moratorium period, and can be repaid in four years.

Typically, there are two ways for restaurant owners to generate working capital: either dilute their equity or take bank loans. Till the announcement by the Finance Minister, banks were reluctant to lend to the sector fearing delinquencies. But Katriar says that restaurants will wait to make use of this scheme until they are allowed to open the outlets.

"It was one of our demands to the government to provide for collateral-free, low-interest loans to the sector. We expect more direct benefits for the industry in the days to come," he says. The moratorium clause under this measure needs to be understood in detail since the quantum of interest component is typically higher, as compared to principal, in the first few years, Katriar added.

Industry players say that the other announcement for stressed MSMEs - subordinate debt provisions of Rs 20,000 crore - will help revive restaurants, especially smaller players, who are close to going bankrupt. As far as changes on the EPF (employees' provident fund) side are concerned, it's not going to make much of a difference. "That really doesn't help us. They could have instead introduced input tax credit for the food services sector. Also, the revision of the MSME definition is a realistic step," says Rakshay Dhariwal, MD of Pass Code Hospitality. "While I am open to take loan, but I'm more interested in fund of funds scheme where the government will take equity in companies to expand them. It will help entrepreneurs like me to cope with COVID-19, and still continue to expand," says Dhariwal.

As industry hopes for more measures, today's announcements were rather unexpected for many companies. Till about the mid-April, the sector was hoping for relief from the government but their confidence started fading away as the government delayed the economic stimulus. Since the lockdown, the industry association has submitted their demands with different authorities, including Sitharaman and NITI Aayog CEO Amitabh Kant.

As per dining out and online table reservation tech platform Dineout, the F&B sector contributes around 3 per cent to the GDP, and employs some 7.3 million people. With the coronavirus pandemic, nearly 30 per cent of those employed are at risk of losing jobs, and the monetary loss could be as high as Rs 1 lakh crore.

Also read: Economic relief package 'frivolous and gimmicky,' say MSME bodies

Also read: FM Sitharaman announces Rs 3 lakh crore collateral-free automatic loans for MSMEs

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