Almost two full years since the COVID-19 pandemic broke out, some sectors of the Indian economy were more battered than the others. Take the case of the hospitality industry, which had to deal with complete and partial lockdowns and ad hoc restrictions. While a modicum of recovery was evident in mid-2021 for few hotel companies, a majority of the stakeholders is yet to revert to its erstwhile buoyancy.
One reason behind this slow progress towards business reclamation is the capital intensive nature of the sector – long-term and low cost financing are critical elements for its survival and growth. Fortunately, the Finance Minister can step in here as a saviour and incentivise banks to offer various sector specific and targeted package fiscal tools to the industry.
“Temporary measures such as moratorium and ECLGS schemes have allowed the sector to steer through the pandemic. However, these schemes need to be revaluated and restructured, given that the pandemic’s impact has stretched far longer than expected,” said Ashish Jakhanwala, MD and CEO, SAMHI Hotels. He added that relaxations like extension of the loan tenures and allowing back ended amortisation will allow a borrower some time to find longer term solutions.
The extension of tenures under ECLGS is most critical amongst the fiscal interventions that can be considered, given the prolonged impact of the regulatory response to COVID. Jakhanwala also suggested that the government consider converting part of existing loans within the sector to long term bullet facilities with an underlying guarantee from government (similar to ELCGS) to allow both reduction in financing cost (due to underlying government guarantee). “The administration can also reduce near term liquidity pressure on both borrowers and the lenders to the sector,” he recommended.
IN LOCKSTEP WITH LOCKDOWNS
Over the years, the IPO-bound SAMHI Hotels has built a portfolio of over 27 hotels by acquiring underperforming properties and revitalising them to unleash their true potential. It does it by making the right interventions to improve the product, brand and its long-term performance to draw the relevant profile of customers based on the hotel’s positioning. These rebranding and renovation exercises require extensive capital investment to ensure that the asset remains relevant and competitive.
Unexpected disruptions like the pandemic can wreak havoc on the go-to-market plans outlined for similar projects by hoteliers. Jakhanwala doesn’t expect the government to deal with cyclical nature of any sector, since he believes that the investors and operators need to figure this out. At the same time, the impact of COVID-19 related restrictions and policies need decisive mediation from the government, both for fiscal health and impact on short term as well as long term demand.
“If authorities feel that they will continue to exercise newly discovered powers of lockdown, forced closure of establishments or restrict and discourage access by customers to any business, then they need to be prepared to suitably support such sectors, both fiscally and otherwise,” he said. “If such discretions are exercised repeatedly without direct, timely and decisive support, then we should be prepared to risk disenfranchising an entire sector, its workforce and the broader linked economy.”
According to Jakhanwala, only a few sectors are singled out in repeated lock-downs or similar measures taken by local authorities, which impact that sector’s recovery trajectory. It is, therefore, time to develop a more predictable and sustainable approach towards all sectors including hospitality.
“It is well established that strengthening of healthcare infrastructure, vaccination and COVID appropriate behaviour are the only effective means of combating this and potentially future pandemics. Travel bans have done little to contain the virus. Therefore, we await to hear a more assuring message from regulators,” he opined.
