We know that globally tourism is a significant contributor to GDP and employment and India is no exception. As per data released by the World Travel & Tourism Council (WTTC), for the year 2019, tourism contributed USD 194 billion to the national economy and accounted for 6.8% of India’s GDP and 8% of the country’s employment. However, it was only in the last decade that the government identified Tourism as one of the five pillars of the Indian economy which is currently poised to be the third largest economy in the world. The Union Budget 2023-2024 has announced the development of tourism in a challenge mode with the addition of 50 destinations. India Tourism Vision 2047 has set an ambitious target of 100 million foreign tourist arrivals and 20 billion tourist visits. Indian tourism economy is expected to reach a whopping $ 3 trillion. As providers of tourist accommodation, hotels are a key tourism infrastructure much like rail, road, airports, telecommunications and ports.
As far as hotels are concerned however, the country is grossly under-roomed in comparison to other destinations and is not in a position to service the targeted tourist arrivals given the current inventory and the pace of addition of hotel rooms.
Hotel occupancies and ADRs are at a decadal high with a strengthening of demand in tier 2 and tier 3 cities. The demand supply gap is pushing rates to the extent that the growth is not sustainable. The additional requirement of rooms is huge and given the capital-intensive nature of hotels, a humungous volume of funds is required to augment inventories. Hotel gestation period is long.
There is an urgent need to incentivise investments in hotels. This needs to change and all classified hotel projects, existing, under development This end can be achieved by a simple tweaking of the RBI’s harmonised master list of infrastructure sectors. Hotels have been categorised as a sub sector under or new, one-star or above, located anywhere in India to be included in the list. This simple intervention will enable addition of hotel rooms in about 100 cities which are centres of tourism, major metros, capital cities of States or the hub access to other lesser destinations. It will aid construction of hotels in budget categories.
Another known fact about hotels is their high costs of operations with a large percentage of the costs being fixed in nature. most of the costs relate to heating, power and lighting. Whereas the costs are fixed, the revenue streams are variable given the seasonality of business, the vulnerability to events like natural/manmade disasters, to geopolitical developments, to the general health of the economy, exchange rate fluctuations, etc. This also discourages investment in hotels as the viability of hotels and hotel projects is at risk. Hotels generate a large number of jobs, both direct and indirect, across skill sets and also employ women and specially abled persons. The multiplier effect of hotels in the economy is known to be higher than manufacturing and agriculture. It is only logical therefore that the benefits given to Industry in terms of power tariffs, rate of property tax, utility rates, interest rates and other benefits be also extended to hotels. This will help in rapid expansion of hotels.
Hotels have been often viewed as an “elite “sector even though they cater to basic need of a traveller. Hotels have been a convenient milking cow for authorities in terms of levying taxes, licence fees etc. While the compulsion of the policy makers wanting to prioritise issues of hunger, poverty, malnutrition, defence, health etc is understandable, ironically it has kept us from reaping the numerous benefits of building hotels.
The current Amrit Kaal is the most opportune time to bring about a change in perspective supported by policy changes that facilitate hotels. India is looking at Vision 2047 of a developed nation as it turns 100, hospitality industry can play a key role by creating jobs for the aspirational youth of the country taking advantage of the demographic dividend. Hotels contribute to several ESGs. They improve not just the infrastructure and economy of the regions in which they come up but also add to the lifestyle and expand the culture of the local people. Hotels were placed in the highest slab of 28% GST together with” sin” goods. It took a long time to bring them out of that bracket. The threshold of room tariffs for 18% GST was a low of Rs.5000 per night. Currently it stands enhanced to Rs.7500. However, given the cost of living this requires a further review.
High GST has made India a more expensive destination in comparison to the countries in its competitive set where tax on hotels ranges from nil to 12 %. The international arrivals into the country continue to lag behind pre-covid levels. There is a requirement of a healthy mix of domestic and international business for long term and sustainable growth.
Hotels are burdened with numerous licences, the process of acquiring thereof is cumbersome and time consuming. At times one licence/approval is a pre-requisite of another. The licence fee including excise fee for bar licence is steep. While India fares much better today on the ease of doing business there is much to be desired for this sector. The industry has been advocating a reduction in the number of approvals and a single window for obtaining the necessary NOCs for hotel projects/operations.
The shortage of and high cost of land has impacted viability of hotel projects. There must be an allocation of land banks for hotels at better rates. To take advantage of every square foot of real estate, the FARs/FSIs for hotels need to be in line with international norms.
This sector has never and is not asking for any grants or subsidies. Even during the difficult pandemic period, the industry showed resilience and supported the government and the nation by providing safe accommodation to doctors, health and sanitation workers, stranded country men. Hotels doubled up as quarantine centres and augmented the hospital bed capacities providing relief to the critical groups of people at huge financial costs and often putting at risk their own employees.
What the sector seeks is just a recognition of its role as an emerging engine for GDP growth and employment. The suggested structural policy reforms for the hospitality sector will not benefit the industry alone. Rather they would also be to the advantage of the nation. There would be largescale job creation, improved tax revenue collection by boosting industry revenue. The hotel sector can contribute to the government’s vision of an inclusive economy like no other sector can. The opportunity cannot be lost and needs to be seized upon without any delay.
