Room for support – The Hindu BusinessLine

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The battered tourism, hospitality and aviation industry could do with a budget stimulus

The Reserve Bank of India’s (RBI) latest assessment of the state of the economy (January 2022 Bulletin) confirms some of our apprehensions – that Omicron may be “more a flash flood than a wave” but its impact on the economy and contact-intensive sectors in particular cannot be wished away. While India, according to the World Bank, is expected to grow 8.7 per cent in 2022, the latest mobility indicators (January first week) point to a disquieting scenario – of contact intensive sectors being in the red even in the event of a recovery. The RBI observes that poor international and domestic passenger traffic, as well as tourist arrivals, persisted through the latter half of 2021, even as the economy was in recovery mode. The deficit vis-a-vis pre-pandemic levels narrowed between August and November, but remained substantial at 17.6 per cent in the case of domestic air passenger traffic in November 2021 (over November 2019), against 43.8 per cent in August 2021. In the case of international passenger traffic, this gap was even larger at 58.6 per cent in November, against 77.5 per cent in August. This has impacted the airlines, hotels, tourism and restaurants sectors.

These contact-intensive sectors need fiscal support – over and above the Emergency Credit Line Guarantee Scheme (ECLGS). Under ECLGS 3.0 announced in March 2021 for hotels, hospitality and tourism sectors, they can avail themselves of loans up to 40 per cent of credit outstanding subject to a cap of ₹200 crore. However, the deadline of March 2022 for ECLGS must be extended for these sectors by at least another six months. At stake are the jobs of over 40 million people. The biggest problem that the hospitality industry will face is on the cash flow front as they will continue to bear fixed costs such as electricity bills, salaries and rent even as revenues turn pale. The hospitality industry contributes 9 per cent to India’s GDP. The ECLGS has made a bigger difference to the fortunes of the mid-sized businesses.The May 2020 proposal of the Centre to foot the PF bill of employees will boost the sector as a whole, besides formalising their existence. To ensure that airline operators survive this phase, the Centre can consider reducing taxes on aviation turbine fuel as a temporary, short-term measure, without seriously compromising its revenues. Airport landing and parking charges can be pared as well. The Centre and States should work in tandem on relief measures for hotels and restaurants, such as licence fees and electricity rates. Any Budget stimulus that leaves out employment-intensive sectors will not be a broad-based one.Published on January 18, 2022COMMENTS

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