The hotel industry, that showed some signs of revival towards the end of the last year, is gearing to rise to its full potential during the year, leaving behind completely the scars global slowdown inflicted upon it. The hotel industry is lobbying hard with the government to accord it the infrastructure status, to enable it to reinvest its profits and attract a friendly tax regime. An independent FICCI-Evalueserve study on India’s hotel industry has promised a bright future but only if the government initiated key policy changes in the sector.
The hotel industry that petitioned the tourism ministry to push the finance ministry for the infrastructure status tag in the forthcoming budget is optimistic that the finance minister would respond favorably. It is reliably learnt that the tourism ministry has already forwarded a yes recommendation to the finance minister.
The need to accord the infrastructure status and export industry status to the hotel industry to give it the much-needed impetus has also been stressed by an in-depth status report on the hotel industry developed jointly by FICCI and Evalueserve.
In a bid to boost investments in hotel infrastructure and give a fillip to the tourism sector, a FICCI-Evalueserve study has called for grant of infrastructure status and export industry status to the hotel industry.
The study has come with a number of suggestions which would benefit the industry: de-linking of hotel projects from commercial real estate, 100 per cent FDI in developing tourism infrastructure in India, escalation of investment in the tourism sector, creation of land banks for budget hotels and single-window clearance for new hotel projects by the state governments, identification of hotel sites to be given on long-term leases, improvement of civic amenities through PPP model, and development of one destination in each pro-active state as a model tourism destination.
The study presents an optimistic scenario. It says the Indian travel and tourism industry is expected to grow at a much faster rate than its global counterpart or the South Asia regional industry, the study claims. A senior FICCI official said, “The Indian hotel industry has a huge
untapped potential. To unlock this potential, there is need to work on a set of policy issues including the infrastructure status being given to the hotel industry.”
According to Mr. Subhash Goyal, an industry veteran and chairman, Stick Travels, the entire tourism industry including the hotel industry needs growth-oriented policies and without doubt the hotel segment was a critical part of the overall infrastructure in the country and hence must be accorded the status.
The other promising feature of the hotel industry as highlighted by the study is that although the business travel segment had suffered a slowdown last year, it was expected to fully bounce back by 2019. Growth in business travel is less than that in personal travel not only in India but also across the globe. This trend is expected to continue over the next 10 years, the study says.
The study maintained that the Indian tourism industry was expected to present a number of opportunities in the first-class and mid-market hotel segments, with most of the rooms being added to these segments in the next five years. In the first quarter of the last calendar year, India had a 421-hotel project in pipeline amounting to 72,682 rooms.
According to World Travel and Tourism Council (WTTC), the Indian travel and tourism industry is expected to generate Rs 3,239 billion ($ 67 billion) worth of economic activity (includes direct and indirect activity) in 2009. The hotel sector direct impact on the GDP is Rs 1,165 billion or about 2.2 per cent of the GDP, and it provides direct employment to 12.9 million people (2.7 per cent of the total employment).
The FICCI-Evalueserve study though identified specific action points justifying the demand. On grant of infrastructure status to the hotel industry, the study reasoned that the industry was unable to enjoy a multitude of benefits, owing to the fact that is had not been accorded industry status across the country.
The status would encourage re-investment in the hospitality sector. This would also channelise investment flow in the tourism sector and help bridge the demand-supply gap. India requires investments worth INR 600 billion over the next five years to meet the unmet demand for about 1,50,000 rooms. According to WTTC, the Indian tourism industry would generate about 40 million jobs by 2019.
As regards the other key demand of export industry status, the FICCI study said, “The hotel industry: The tourism industry earned foreign exchange worth USD 11.7 billion in 2008, an increase of 9.5 per cent from the previous year. Given this quantum of earnings, the industry should be granted deductions on foreign exchange earnings. The benefits available under Section 80HHD of Income Tax Act 1956, which was discontinued after 2005-06, should be revived. An exemption on the foreign exchange earning of tourism industry on the same lines as that given to other foreign exchange-earning industries would be beneficial for the industry’s growth, the study added.
The study wanted the government to de-link hotel projects from commercial real estate sector. Currently, hotel projects are categorised as commercial real estate projects, which means they have to meet the stringent terms and conditions meant for commercial real estate, bear higher interest rate and be rated non-priority sector for financial assistance. This, the study said, had an impact on the growth of the industry. For sustained growth, tourism projects must not be clubbed under the real estate sector. “Earlier, both hotels and hospitals were included under real estate; however, hospitals are no longer clubbed under real estate. The same benefit should be extended to hotels. This de-linking will support growth in new projects and also assist the on-going projects (including projects targeted at Commonwealth Games 2010),” the study added.
FICCI also wanted 100 per cent FDI in developing tourism infrastructure in India arguing that the investment in tourism needed to be escalated. In 2008, India’s expenditure on tourism as a percentage of the total expenditure was about 1 per cent as against Malaysia’s 1.74 per cent, China’s 3.9 per cent and Singapore’s 10.2 per cent. For the industry to gain momentum, it was extremely important to initiate an increase in investment. Government’s capital expenditure on tourism is negligible compared to the foreign exchange earnings (FEE) of the industry.
By K Anjna