Budget 2021: What Tourism Industry Expects

As India’s Finance Minister Nirmala Sitharaman prepares to present the Government’s budget for FY 2021-22 on 1st February, there is rare curiosity about and greater expectations from the Budget, which comes in the wake of the devastation caused by the Covid-19 pandemic. The Budget 2021-22 assumes special significance for India’s travel and tourism industry, which is not only among the worst affected sectors due to the pandemic but has also left out of the Government’s Aatmanirbhar Bharat Package and other relief measures.

Last year, travel and tourism sector across the world became the victim of the Covid Pandemic. India’s tourism industry met the same fate, unprecedented disruptions and devastations leading to massive unemployment and bankruptcy. Terming the impact on tourism as unprecedented, Ankur Bhatia, Executive Director of Bird Group says that the pandemic left the industry totally high and dry with job losses as high as 70% and pay cuts as much as 50%. According to him, hotels are folding up at an unprecedented rate, new projects are getting halted, FDI is at near zilch and bad debts are mounting at humongous levels.

Echoing similar sentiment, Madhavan Menon, Chairman & Managing Director of Thomas Cook (India) Ltd., said that the travel and tourism industry has been one of the most-severely impacted sectors in the pandemic; and is staring at a long road to recovery.

It goes without saying that India’s travel & tourism has suffered a huge blow due to the pandemic and related lockdowns; it is very essential to save this sector which, in normal times, is estimated to contribute more than 9% to India’s GDP, and accounts for more than 12% of the country’s total employment. As Vishal Suri, Managing Director of SOTC Travel says, the travel & tourism sector is a vital contributor to the country’s GDP and a significant employment generator. It would be imprudent and unfortunate if the government does not extend their hands of support to this beleaguered industry.

Bruised and battered tourism industry hopes that the Budget 2021 will address its concerns and help it tide over the existential crisis. Its wish-list includes infrastructure status, tax incentives, generous budgetary allocation and disbursement of SEIS benefits. Getting infrastructure status has been a long-standing demand of the industry.

Coming at this critical time, Budget 2021 presents the Government an excellent opportunity to recognise the vast potential and contribution of the tourism sector, and accord the importance it deserves in policy makings. “Given its critical contribution to India’s economy and its powerful multiplier impact on employment generation, an imperative at a time like this, the tourism industry deserves top priority in the Union Budget 2021,” says Madhavan Menon, adding that while the Government has rolled out relief packages for several industries, the tourism sector has been overlooked; therefore, the forthcoming Budget offers an ideal opportunity to address the crisis in this sector.

People associated with the industry lament that the Government has not been sensitive and supportive towards this sector during this crisis. This lack of support has further aggravated the crisis, delaying any chance of early revival and threatening the existence of many companies. The Government can save the industry, help its revival by presenting a pro-tourism budget. The next Budget should introduce supportive policies for the tourism sector, and make a generous allocation for it, according to Vishal Suri of SOTC Travel.

Ankur Bhatia, a leading industry voice who currently chairs CII’s Northern Region Committee on Tourism & Hospitality stressed that the sector can be salvaged only if the Government heeds to proposals made by the industry year after year. According to him, the Government must grant the much-awaited infrastructure status to the hospitality sector in Budget 2021, which would allow hotels to avail electricity, water and land at industrial rates as well as better infrastructure lending rates. This will help companies cut their operational costs.

At present, the biggest challenge before the industry is the lack of cash. Facing liquidity crunch, travel companies, hotels and restaurateurs are finding hard to sustain their businesses. The Budget must address this cash crisis for the sake of the survival of the sector. In this respect, Ankur Bhatia suggests that the Government should extend the moratorium on all working capital, principals, interest payments, loans and overdrafts till March 2021. He says that the current interest rate is very high; it must be kept at a minimum. “RBI’s resolution framework on loans must be reworked upon, and that one-time rescheduling of principal interest dues needs a dekko,” he added, urging the Government to allow GST input credit on the entire project cost for hotel developers. Currently, it’s only for moveable assets. He further said that as hotels are currently charged with the commercial tariff (highest tariff bracket) and industrial duty (highest duty bracket); fixed costs should be waived off for the period of the lockdown.
In order to mitigate the liquidity crisis, Madhavan Menon suggests that the Budget should offer soft loans to the sector to finance working capital, incentivise tourism spends by providing income tax concessions and pay overdue SEIS benefits. He also sought easing of indirect taxes and waiving off TCS to aid the recovery. Backing the call to waive TCS, Vishal Suri says it is critical for stimulating demand.

According to Bhatia, the Government should grant exporter benefits to the hospitality sector under the Service Exports from India Scheme (SEIS) and Export Promotion Capital Goods (EPCG) Scheme for some more time to help them tide over the pandemic impact. Incentive schemes like SEIS can offer a bit of succour to the industry at these tumultuous times, but their continuance is hanging in the balance for quite some time. The industry has been asking the Government to clear pending dues under SEIS for the last fiscal.

Bhatia also wants that foreign exchange earnings for inbound tours and hotels should be treated at par with other exports and services and that such earnings should be accorded ‘Deemed Export of Services’ status along with a Zero rate on GST.

Sarbendra Sarkar, Founder & Managing Director of Cygnett Hotels & Resorts, wants the Government to announce some positive measures to help the hospitality industry boost revenue. His wish-list includes measures such as low GST rates on hotel room tariffs and increased spending on infrastructure and connectivity.

To sum up, the tourism sector is currently facing two biggest challenges: a cash crunch and a lack of demand. Therefore, Budget 2021 must introduce measures aimed at addressing these two challenges.

Focus on Domestic Tourism
For the time being, domestic tourism is the only hope for India’s travel & tourism industry as international travel remains largely restricted due to curb on international flights. With the extended ban on international commercial flights, domestic tourism offers a strong potential, says Menon, and this requires priority support otherwise swathes of tourism dependent communities will languish and along with it will dwindle our precious local art forms, heritage and culture.

To boost domestic tourism, regional connectivity and last-mile connectivity needs improvement. According to Menon, innovative and viable initiatives like UDAN need to see sustained delivery to boost domestic tourism. It is equally important to maintain budgetary outlay for other infrastructure projects. Besides, in this COVID era, health, safety and sanitation must retain their primacy in the Budget.

Domestic tourism can also be encouraged by financial incentives. According to Bhatia, income tax deductions on domestic travel could encourage such tourism. Until inbound tourism restarts, which may take a longer time; it is imperative that focus should be on domestic tourism for the sector’s revival.

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