Indian Hotel Industry: A New Phase of Growth

Over the last decade and half the mad rush to India for business opportunities has intensified and elevated room rates and occupancy levels in India. Even budget hotels are charging USD 250 per day. The successful growth story of 'Hotel Industry in India' seconds only to China in Asia Pacific.

'Hotel Industry in India' have supply of 110,000 rooms. According to the tourism ministry, 4.4 million tourists visited India last year and at current trend, demand will soar to 10 million in 2010 – to accommodate 350 million domestic travelers.

'Hotels in India' has a shortage of 150,000 rooms fueling hotel room rates across India. With tremendous pull of opportunity, India is a destination for hotel chains looking for growth. The World Travel and Tourism Council, India, data says, India ranks 18th in business travel and will be among the top 5 in this decade. Sources estimate, demand is going to exceed supply by at least 100% over the next 2 years. Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, 'Hotel India' room rates are most likely to rise 25% annually and occupancy to rise by 80%, over the next two years.

'Hotel Industry in India' is eroding its competitiveness as a cost effective destination. However, the rating on the 'Indian Hotels' is bullish. 'India Hotel Industry' is adding about 60,000 quality rooms, currently in different stages of planning and development and should be ready by 2012. MNC Hotel Industry giants are flocking India and forging Joint Ventures to earn their share of pie in the race. Government has approved 300 hotel projects, nearly half of which are in the luxury range. Sources said, the manpower requirements of the hotel industry will increase from 7 million in 2002 to 15 million by 2010.

With the USD 23 billion software services sector pushing the Indian economy skywards, more and more IT professionals are flocking to Indian metro cities. 'Hotel Industry in India' is set to grow at 15% a year. This figure will skyrocket in 2010, when Delhi hosts the Commonwealth Games. Already, more than 50 international budget hotel chains are moving into India to stake their turf. Therefore, with opportunities galore the future 'Scenario of Indian Hotel Industry' looks rosy.

While the potential of hotel industry is great, there are several constraints for the industry to grow. High cost of land in the country often discourages an investor to put in money in construction of new hotels. Construction of hotels is highly capital intensive and it is estimated that to construct a single five-star room it costs around Rs 1.25 crore. As a result there is no incentive to construct new hotel properties and there is a mismatch between demand and supply leading to higher occupancy rates and increasing prices. In fact, average rate of hotel rooms in five-stars has gone up from Rs 4,000 five years ago to Rs 16,000 now. Though this rate can be affordable for business travellers, it is very difficult for leisure travellers to pay such exorbitant rates.

Across the country there is no rationalisation of taxes as states charge different rates. Secondly, multiplicity of taxes like value added tax and service tax further compound the problem. Tax holidays are available only to hotels at heritage sites and so this measure is restrictive for the growth of the hotel industry.

In order to increase the stock of hotel rooms, the Federation of Hotel and Restaurant Associations of India suggested to the government that the floor area ration of the existing hotels should be increased. This was a couple of years before and will help create additional rooms in the existing properties and ease the burden of shortage of hotel rooms in the country. The proposal is yet to be implemented.