U. Bharath (cbedit@imaws.org)
The restaurant industry is one of India’s largest employment generators, but still struggles to access the full benefits of its classification under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Despite being formally recognised as part of the MSME sector, restaurateurs point out that a slew of restrictions and discriminatory practices have denied them critical advantages, such as power tariff parity, reduced bank loan interest rates and tax concessions.
Industry associations argue that while the government has extended several support measures to manufacturing units, restaurants are excluded on the grounds that production and sales happen under the same roof. This distinction, they say, is eroding the viability of small players in particular.
Tariff Burden: ‘Commercial’ Classification Persists
One of the most pressing challenges for the sector is the high cost of electricity. According to the Tirupathur District Hoteliers’ Association (TDHA), restaurants are charged at commercial tariff rates, despite repeated appeals to bring them under the 3-B category of small industries.
“The industry is reeling under a crisis, as the Tamil Nadu Electricity Regulatory Commission (TNERC) has not scaled down the power tariff for restaurants even after the July 2025 revision. We are still charged commercial rates, which is unsustainable,” said P. Babu, Secretary of TDHA.
While small industries pay between Rs 8-8.25 per unit, restaurants continue to pay Rs 13 per unit — a rate hike that has been imposed several times between 2022 and 2025. Associations have petitioned both the TNERC and the state government, but to little effect.
“We urge Chief Minister M.K. Stalin to intervene and provide relief, so the restaurant sector can survive and grow,” Babu added.
Low Power Factor Penalty adds to Woes
Adding to the burden is the penalty levied by the Tamil Nadu Power Distribution Corporation Ltd (TNPDCL) for low power factor usage.
Restaurants, often dependent on heavy electrical appliances, face additional charges of Rs 2,000 or more every few months. Officials cite grid power losses and penalise establishments that fail to install capacitors to regulate consumption.
“This penalty system is unfair to restaurants that are already struggling. We request the government to abolish this practice,” Babu reasoned. In addition, restaurateurs highlighted the hike in professional tax imposed by civic bodies, which they argue needs urgent review.
MSME Classification Benefits Denied
Despite being formally included under MSME, the restaurant sector finds itself denied parity with other units. V. Kumaraguru, Treasurer of TDHA, explained: “Officials insist that only production units qualify for low tariffs, not those that combine production and sales. This rule affects not just restaurants but also bakeries. Unless production and retail spaces are separated, no benefits are extended.”
The restrictive policies have dissuaded many from seeking MSME registration. Barely 20% of restaurateurs in Tirupathur have completed Udyam registration, while others either lack awareness or consider the process futile since tariffs, civic taxes, and GST continue to weigh them down.
Kumaraguru also flagged the 18% GST on commercial LPG cylinders as a persistent concern. “The government should consider supplying subsidised cylinders to restaurants, similar to domestic consumers who pay only 5%. A 19-kg refill now costs around Rs 1,700, and the frequent price revisions tied to crude oil fluctuations are crippling small establishments,” he said.
Licensing and Regulatory Challenges
Another area of contention is the cumbersome renewal of food safety licences. Senthil Murugan, President of TDHA, noted, “Every year we are forced to renew our FSSAI licence. We have been appealing for a one-time licence or at least a multi-year structure. It is encouraging that fire safety licence renewals have been relaxed to once every three years, but food safety remains unchanged.”
Such regulatory hurdles, restaurateurs argue, place unnecessary strain on small businesses already grappling with financial challenges.
Yelagiri Development Neglected
Beyond tariff and taxation issues, TDHA has also drawn attention to the lack of infrastructure development in Yelagiri, a picturesque hill station in the Eastern Ghats. “Despite being a popular destination, Yelagiri suffers from poor road connectivity. Only a single-lane road from Jolarpet with 14 hairpin bends serves the hill station. Key tourist spots like Jagalamparai waterfall lack even basic road access,” lamented Senthil Murugan.
Although 90 acres were earmarked for a rope car facility in Nilavur, the project has yet to materialise. Hoteliers claim that the absence of reliable infrastructure means restaurants and hotels in the region barely do business on weekdays, relying solely on weekend crowds.
The association has urged the government to establish a catering institute in Yelagiri through the Tamil Nadu Skill Development Corporation (TNSDC). Offering six-month to one-year programmes, such an institute could address the acute labour and staffing shortages faced by the district’s restaurant sector.
Call for Government Action
The collective voice of the Tirupathur District Hoteliers Association underscores the gap between policy recognition and on-ground reality. While the MSME tag was meant to bring relief and growth opportunities, restrictive interpretations and lack of parity have kept the restaurant sector outside the circle of benefits.
From high tariffs and LPG costs to professional tax hikes, licensing burdens, and poor infrastructure, restaurateurs warn that their margins are being eroded daily.
“The government must act decisively — through tariff reforms, rational GST policies, and investment in tourism infrastructure — if the restaurant sector is to thrive under the MSME umbrella,” the association officials concluded.
