Hospitality is backbone of tourism industry but needs huge investments

Wednesday, February 26, 2020

During his Independence Day speech in 2019, Prime Minister Narendra Modi had urged Indians to visit 15 Domestic Tourist Destinations by year 2022. It was beyond a mere appeal to promote tourism. It was reflective of the Government’s fast-changing policy outlook towards the sector, which had, for too long, remained low-priority at the policy level, notwithstanding its high economic relevance.

It’s indeed, great that the Industry has finally received the attention it deserves, especially as India is a country blessed with tremendous tourism potential. Harnessing this potential is the key to the country’s envisioned development goals. For instance, at a time when the Government’s spending on Travel and Tourism in 2017 was around 0.1 per cent of the GDP, our sector contributed 9.4 per cent to the GDP. The next year, we contributed around 9.2 per cent of GDP while generating 2.67 crore jobs. A sector that generates healthy revenues while also being employment-intensive, suit both the economic aspirations as well as demographic requirements of our country.

However, making India a hotspot tourism destination needs to be backed up by a robust infrastructure, in terms of connectivity, accessibility and hospitality. This needs a major overhaul, especially in the Tier-II and Tier-III cities.

For example, while Delhi has a room capacity across branded/star category of hotels of around 10320, the eight North-Eastern States with such remarkable tourism potential, collectively have only 2378 rooms. Such data is startling and seriously demands realigning of our policies to promote the inclusive growth of the industry.

So, what is hindering the growth of the hospitality industry in these tourism destinations? It’s the existing stringent lending norms with interest rates ranging anywhere between 11-14 per cent as against the 4-5 per cent in the developed countries. The short repayment tenure further adds to this adverse funding regime. Similarly, the RBI directive that prohibits banks from funding any land purchases is yet another major constraint. Land acquisition costs for a hospitality project range between 30-40 per cent of the total project cost and funding this whole cost with equity leaves the investor as well as the developer with little financial leeway.

Although the Government has in the recent past made efforts to promote investment in the Hospitality sector by relaxing the FDI norms while also offering a five-year tax holiday for 2/3/4-star category hotels located around the UNESCO-World Heritage Sites, yet this is a case of too little. Considering the levels to which we need to scale-up our accommodation facilities, incentives of this type should be rolled out on a pan-India basis, with particular emphasis on eastern and North-Eastern India. Extending the capital investment subsidy, remission on land conversion charges and interest subsidies, along with conferring the sector with an Industry and Infrastructure status, should be favourably considered to incentivise the establishment of hospitality projects.

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