Higher standards............

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Hotel

Ø Opportunities
Ø Applicable laws/regulatory policies.
Ø Tax benefits/ incentives
Ø Current projections in budget.

I Introduction

Hotel Industry in India is witnessing tremendous boom in recent years and going through
an interesting phase. One of the major reasons for the increase in demand for hotel
rooms in the country is the boom in the overall Economy and high growth in sectors like
information technology, telecom, retail and real estate. Rising stock market and new
business opportunities are also attracting hordes of foreign investors and international
corporate travellers to look for business opportunities in the country particularly growth in
tourism sector. As hotel industry is inextricably linked to the tourism industry and the
growth in the Indian tourism industry has fuelled the growth of Indian hotel industry.

Explosive economic growth in india ignite unquenchable demand for hotel rooms. With
huge investments flowing into India for the development of infrastructure such as roads,
highways, airports and convention centres, interest in hotel developments is hitting new
highs as tourism, business and travel are on the rise.

The booming tourism industry has had a cascading effect on the hospitality sector with
an increase in the occupancy ratios and average room rates. And with the continuing
surge in demand, many global hospitality majors have evinced a keen interest in the
Indian hospitality sector. It is estimated that India is likely to have around 40 international
hotel brands by 2011.

II Opportunities

The spurt in India’s tourism industry growth has had a ripple effect on its hospitality
sector. Rising income levels and spending power combined with the governments open
sky policy have provided a major thrust. The industry is growing at a very rapid pace and
there is a demand for more rooms both in metros and smaller towns. It is estimated that
India is likely to have around 40 international hotel brands by 2011.

India’s booming hospitality industry has transformed into a veritable basket of the
choicest of rooms, food and beverage, health and business facilities, travel packages
and everything that you can think of. New global entrants are vying with existing local
players to provide world-class services at prices suited to every pocket.

An estimated 4.4 million tourists are expected to visit India with an annual average
growth rate of 12% in the next few years. The domestic tourist market is also flourishing.
The commonwealth games in 2010 will add to the demand for quality accommodation.

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The Government of India’s Incredible India destination campaign and the Atithi Devo
Bhavah campaign have also helped the growth of domestic and international tourism
and consequently the hotel industry.

The opening up of the aviation industry in India has exciting opportunities for hotel
industry as it relies on airlines to transport 80% of international arrivals. The
government's decision to substantially upgrade 28 regional airports in smaller towns and
privatization & expansion of Delhi and Mumbai airport will improve the business
prospects of hotel industry in India. And the upgrading of national highways connecting
various parts of India has opened new avenues for the development of budget hotels in
India. Taking advantage of this opportunity Tata group and another hotel chain called
'Homotel' have entered this business segment.

Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of
150,000 rooms fueling hotel room rates across India. According to estimates demand is
going to exceed supply by at least 100% over the next 2 years. To overcome, this
shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different
stages of planning and development, which should be ready by 2012.

India’s hotel industry comprises of four main categories star hotels, heritage hotels,
budget hotels and unclassified hotels. It is expected that the budget and mid-market
hotel segment will witness huge growth and expansion while the luxury segment will
continue to perform extremely well over the next few years.

It is forecasted to be the number 3 market in the world by 2015 for hospitality and
tourism.

The industry is growing at a very rapid pace and there is a demand for more rooms both
in metros and smaller towns.

In short, the Indian hospitality industry is poised for tremendous growth as the demand-
supply imbalance has prompted several national and international hotel companies to
focus their energies towards expansion in India. The next few years will thus witness the
opening of several hotels in India.

III Regulatory policy

The Ministry of Tourism is the nodal authority & along Dept. of Tourism it is responsible
policies promotion & regulation of hospitality industry particular hotels..

The following are the some of important guidelines issued by the Dept. of Tourism.

Ø Approval of Hotels at Project Stage and Classification & Reclassification of

Hotels.

D-19 (GF) & D- 31, South Extension -1, New Delhi-110049, India
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Ø Guidelines for Classification of Heritage Hotels

Ø Time Share Resorts (TSR)
Ø Stand Alone Restaurants
Ø Guidelines for apartment hotels
Ø Guidelines for approval of Guest Houses

FDI in this sector is permitted up to 100 per cent on the automatic route. For foreign
technology agreements, automatic approval is granted if:

• Up to 3 per cent of the capital cost of the project is proposed to be paid for technical
and consultancy services

• Up to 3 per cent of the net turnover is payable for franchising and marketing/publicity
fee, and

• Up to 10 per cent of gross operating profit is payable for management fee, including
incentive fee.

IV. Incentives

Tax incentives under the current Budget

Ø Five year holiday from income tax being granted to two, three or four star hotels
established in specified districts having UNESCO-declared 'World Heritage
Sites'; the hotel should be constructed and start functioning during the period
April 1, 2008 to March 31, 2013.

Ø FBT exempted on creche, employee sports, guest houses facilities.

No specific projections for this sector under the Current Budget.

V. Conclusion

The thriving economy and increased business opportunities especially growth in the
tourism in India have acted as a boon for Indian hotel industry.

The future scenario of Indian hotel industry looks extremely rosy. It is expected that the
budget and mid-market hotel segment will witness huge growth and expansion while the
luxury segment will continue to perform extremely well over the next few years.

D-19 (GF) & D- 31, South Extension -1, New Delhi-110049, India
email: g.khurana@indialawoffices.com, website: www.indialawoffices.com