Delhi’s Restaurant Industry: Compliance Crackdown Highlights Importance of Licensing

Delhi’s restaurant industry is marked by intense competition, an unclear legal structure, and rental rates comparable to New York city. If these factors were not challenging enough for businesspeople, authorities in Delhi have now doubled down on their enforcement of regulations. 

To open a restaurant in Delhi – India’s capital – businesses must procure formal government permissions from multiple regulatory agencies and emergency services, known in India as ‘no objection certificates’. These notoriously convoluted procedures, coupled with inadequate online resources and portals is a recipe for malpractice: encouraging restaurateurs to shirk regulations through a mélange of willed ignorance and petty bribery.

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But, since February 2017, a battalion of regulatory bodies in Delhi have targeted restaurants for non-compliance of rules which have been rarely – if ever – enforced. The sudden attention for regulatory compliance has led to the closure of nearly 120 restaurants, restro-bars, and eateries in upscale areas of the capital, including Defence Colony, Khan Market, Connaught Place, and Hauz Khas village.

Authorities are quick to defend the compliance drive, stating that only a few hundred establishments, out of over 5,000 registered restaurants in Delhi, are impacted. Many of the affected market locations, while popular, suffer from ageing infrastructure; non-compliance of regulatory safeguards, such as fire and safety norms, present significant safety hazards.

Delhi’s compliance crackdown on restaurants

In February 2017, the New Delhi Municipal Council (NDMC) shut down all open air and rooftop dining areas in Connaught Place, a heritage business center in the heart of the Delhi. This was in response to the partial collapse of a rooftop restaurant in the area.

The incident precipitated a knee-jerk response from regulatory agencies in the Delhi government, leading to several hundred closures. Authorities demolished illegal structures in central and south Delhi, cut-off their power supply, and refused to renew licenses to restaurants found violating regulatory norms.

The recent round of regulatory raids in Delhi come in the wake of a fire which killed fourteen people in a luxury rooftop restaurant in Mumbai, India’s commercial capital. The now destroyed premise was never meant for commercial use because it lacked proper exits; the fire could spread so quickly due to the cheap, inflammable materials used to cover the rooftop terrace.

Since the start of the compliance and closure drives, regulatory authorities have found several establishments guilty of similar fire safety violations – principally related to illegally constructed extensions.

Observers expect the next round of regulatory enforcement to focus on the unorganized sector. At least 63 percent of the restaurant industry is unorganized, and many of these establishments are in serious violation of food safety standards.

In December, 2017, the South Delhi Municipal Council (SDMC) announced a ban on the open display of meat products. Many vendors and butchers, however, continue to flout the new rule. Is a new round of regulatory raids already in the making?

Uncertainty a risk for businesses owners

Organizations representing restaurant owners complain that regulatory agencies do not inform them of the impending closures. The organizations also note that while municipal agencies have yet to implement redevelopment measures outlined in the city’s Master Plan for 2021, they have been quick to enforce the Plan’s punitive measures. The Delhi Development Authority (DDA) developed the Master Plan for Delhi (MPD) 2021 under guidance from the federal Ministry of Urban Development & Poverty Alleviation. The Master Plan seeks the sustainable and planned development of Delhi over the next five years.

To protest this perceived injustice, several representative bodies have called for organized shutdowns. The SDMC’s regulatory raids have cut deeply into the restaurant industry’s profit margins. The Christmas season is normally marked by increased revenue for restaurants. This season, however, many establishments are failing to break even.

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However, there is some relief to be had for restaurateurs. The Delhi Development Authority has passed several amendments to the Master Plan 2021, including: the reduction of penalties imposed on violators and permission for commercial operations in basements for businesses that pay conversion charges. More recently, the DDA introduced new changes to the Plan by clarifying a uniform Floor Area Ratio (FAR) and enabling builders to develop properties relative to the available size of the plot. 

Licenses – A checklist

In order to operate a restaurant in Delhi, the following licenses/No Objection Certificate (NOC) are mandatory:

• No Objection Certificate (NOC) from the landlord proving tenancy;
• Food Safety and Standard Authority of India (FSSAI) license;
• Bar/liquor license from the Department of Excise;
• Trading license from the municipality (permission to conduct business);
• NOC from the Fire Service Department;
• NOC from the Municipal Health Officer;
• Eating House License from the Police Department;
• Proof of insurance;
• License for a lift (in case of a multistoried establishment) from the electricity department and labor commissioner;
• GST registration;
• Registration under the Shop and Establishment Act with the municipality (labor license);
• Undertaking in the case of music/live performances/disco;
• Approval from the Weights and Measures Department for certifying tools used in the restaurant;
• Certificate of Environmental Clearance from the Delhi Pollution Control Committee; and,
• Signage license for advertising from the municipality.

The time taken to obtain all necessary licenses and permits is approximately three months.

Regulators catching up to market growth

Dining out and food habits in India have significantly changed in the last decade due to rising personal disposable incomes and the aspirations of an upwardly mobile and growing middle class. This is reflected in the country’s dynamic hospitality sector, which, according to the National Restaurant Association of India (NRAI), employs about 5.8 million people, contributes US$35 billion in taxes, and was valued at US$47 billion in 2016.

While the compliance crackdowns appear to be impulsive and inconsistent, regulatory authorities will continue to reinforce  surveillance; accidents due to health and safety hazards have mounted in various metropolitan cities across India in recent years.

Industry observers in Delhi expect authorities to expand the scope of their inspections, using tax compliance with the GST as well as labor and food safety laws in 2018. Ultimately, the compliance raids will move the restaurant industry towards greater transparency and safety.

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