May 25, 2021

Asia

INDIA: Government gets moving on supporting businesses

BY Aditi Phadnis

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( 3 mins)

Facing concerted pressure from the most embattled sectors – tourism, aviation, travel, and hospitality – of the economy, the government is working on a package that will probably offer specially designed incentives, mostly tax-related, to enable these businesses to find their feet. While direct financial support is likely to be generally off the table, the limited disbursement of cash grants to specific sectors cannot be discarded.

The Narendra Modi administration has still not provided details of what a support package will specifically look like or when it will be deployed. Amid warnings that a third wave could be around the corner, the government obviously wants to salvage what remains of business while going ahead with aggressively vaccinating the population in the hope that the effect of the next round of infection might be mitigated. This is probably why it has indicated no timeline for the mitigation steps for the affected sectors.

When considering what form the support measures should take, the Modi administration will be conscious of two painful realities. The first one is that curbs on international travel are unlikely to be lifted before the end of 2021. Therefore, private airport operators can look forward to revenue only from domestic operations. The second reality is that small hotels in smaller cities that have been forced to close need to be treated differently from big hotel brands. Small hotels and eateries are big employment generators. A large section of those who have left urban areas to return home is made of those who were employed in these establishments. Therefore, any package offered to these sectors has to consider their vastly different needs.

Against this background, the measures are likely to be especially targeted. While they might be mostly focused on tax incentives, the potential provision of direct cash grants cannot be discarded. Until a few months ago, the Ministry of Finance (MoF) was vehemently opposed to such a measure. It claimed that grants would be counter-productive, especially in the sectors it now wants to help. The MoF’s main argument was that the ban on international travel and lockdowns that have affected the hospitality business the most needed to taper off if government cash was to have any effect. While cash grants have been given to low-income group families, no business has got government cash, only deferred tax deadlines, easier credit, and bank forbearance. For those who could not settle their debts in time, the government also overlooked compounding the interest.

However, with the second wave badly affecting small businesses, the MoF might consider revisiting its priors. There is also a political compulsion for urgent action. February-March, 2022 will see a slew of local elections, especially in Uttar Pradesh, India’s biggest state by population. Goa and Uttarakhand are also due for polls, and tourism is a big industry in both. All three states are currently ruled by the Bharatiya Janata Party (BJP). If suitable arrangements are not made to revive industry, the party could face reverses.

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