India’s Hospitality Sector in 2026: Navigating Growth, Domestic Demand, and Infrastructure Challenges

Friday, December 26, 2025

In this exclusive interview, Travel And Tour World sit down with Mr. Surendra Kumar Jaiswal, the esteemed President of the Federation of Hotel & Restaurant Associations of India (FHRAI), to gain an in-depth understanding of the current state and future outlook of India’s hospitality sector. With years of leadership in the industry, Mr. Jaiswal shares his insights on the key challenges facing the sector, including the impact of domestic demand, the critical need for infrastructure status, and the recovery in foreign tourist arrivals. He also outlines the strategies for expansion and how the sector plans to capitalize on the rapid recovery of global travel as we approach 2026.

From tackling financial hurdles to embracing sustainability and innovation, Mr. Jaiswal provides invaluable perspectives on navigating the evolving landscape of Indian hospitality and positioning it for long-term success.

India’s hospitality sector is poised for continued growth as it adjusts to a post-Covid world. As the domestic market remains a cornerstone of the industry, the country’s tourism is increasingly driven by domestic demand, reflecting a significant shift in travel behaviour.

With over 85-90% of total tourism volumes coming from domestic travellers, this trend is expected to persist in the long term, thanks to rising disposable incomes, better connectivity, and an increasing preference for short-duration travel. In particular, Tier-II and Tier-III cities are emerging as key players, benefiting from infrastructure upgrades and the demand for leisure, religious, and business travel. As such, domestic tourism will continue to drive the sector’s growth in 2026, providing stability against global economic and geopolitical fluctuations.

While domestic tourism thrives, foreign tourist arrivals are also seeing a sharp rebound, surpassing pre-pandemic levels. In 2023, India recorded 18.89 million international tourists, a 5.47% increase from 2019, marking the country’s strong position in the global tourism recovery. With improved visa facilitation, connectivity, and focused destination promotion, India is on track to convert this momentum into sustained inbound tourism growth by 2026.

However, despite these promising trends, the sector faces a major constraint: the lack of infrastructure status for hospitality. This has hampered the expansion of mid-scale hotels and regional projects, slowing capacity creation, especially in emerging and pilgrimage destinations. Overcoming this challenge, combined with strategic expansions, will be key for the hospitality sector’s successful growth in the coming years.

Will the sector continue to be domestic demand driven?

India’s hospitality sector will continue to be predominantly domestic demand driven, and this trend is structural rather than cyclical. As per the Ministry of Tourism, domestic tourist visits account for over 85–90% of total tourism volumes, making domestic travellers the industry’s most reliable and resilient demand base. Over the past few years, rising disposable incomes, improved highway and regional air connectivity, and a growing preference for short-duration travel have significantly expanded the domestic travel footprint.

Demand from leisure travel, religious tourism, weddings, and business movement now sustains hotel occupancies across most months of the year, rather than being concentrated in narrow peak seasons. This is particularly evident in Tier-II and Tier-III cities, where infrastructure upgrades and better connectivity are translating into steady hotel performance. While inbound tourism is recovering gradually, domestic demand will continue to provide scale, stability, and predictability to the sector, insulating it from global economic and geopolitical volatility.

Can India expect foreign tourist arrivals to touch pre-covid peak?

India can reasonably expect foreign tourist arrivals to not only reach but sustainably move beyond pre-Covid levels, supported by a strong global tourism recovery and improving domestic fundamentals. At the global level, international tourist arrivals reached 1,300 million in 2023, marking a 33.3% increase over 2022, while global international tourism receipts rose to USD 1,507 billion, reflecting a 33.8% growth, underlining tourism’s renewed role in economic growth and job creation.

Within this global recovery, India has strengthened its position, accounting for 1.45% of global international arrivals and 2.1% of worldwide tourism receipts. India’s International Tourist Arrivals (ITAs reached 18.89 million), surpassing the previous pre-pandemic peak of 17.91 million in 2019, registering a 5.47% growth over pre-Covid levels. While Foreign Tourist Arrivals (FTAs) stood at 9.52 million in 2023, reaching 87.09% of 2019 levels, this still represents a sharp 47.89% growth over 2022, indicating strong momentum.

The recovery is being reinforced by robust NRI arrivals at 9.38 million, exceeding pre-pandemic levels by 34.38%, and diversified source markets led by South Asia, North America, and Western Europe. India’s improving competitiveness ranked 39th globally in the Travel and Tourism Development Index 2024, with strong performance in price competitiveness and transport infrastructure further strengthens the outlook. With continued focus on visa facilitation, connectivity, and destination promotion, India is well positioned to convert this momentum into sustained inbound growth.

How has the lack of infrastructure status hampered hospitality players’ expansion plans?

The absence of infrastructure status for the hospitality sector has materially constrained expansion, particularly for mid-scale and regionally focused hotel developers. Hospitality projects are inherently capital-intensive and operate with long gestation periods of 7–10 years, yet they continue to be financed under real estate lending norms. This results in higher borrowing costs, limited access to long-term capital, and tighter credit conditions, all of which weaken project viability.

As consistently highlighted by FHRAI, this financing mismatch has slowed hotel development in emerging destinations, pilgrimage circuits, and Tier-II and Tier-III cities, despite strong demand indicators. The sector’s ability to add quality capacity has therefore lagged actual market needs. Granting infrastructure status would align hospitality financing with its economic role, lower the cost of capital, unlock institutional funding, and enable sustainable capacity creation. Without this reform, expansion will remain cautious and uneven, limiting tourism-led regional growth.

How they are planning to expand in 2026.

Hospitality players are planning measured and strategic expansion in 2026, shaped by strong domestic demand and a visible recovery in global travel. With UN Tourism projecting global tourist arrivals to reach around 1.5 billion by end-2025, Indian operators are positioning themselves to capture both inbound and domestic growth, while remaining disciplined on capital deployment.

Expansion strategies are increasingly focused on asset-light models, including management contracts and franchising, which allow brands to scale while controlling balance-sheet risk. There is also a clear shift towards mid-scale hotels, experiential properties, wellness tourism, and MICE-driven destinations, particularly in high-growth domestic markets. At the same time, sustainability initiatives, technology adoption, and workforce skilling are becoming integral to expansion planning. If supported by improved access to finance and enabling policy measures, 2026 is likely to see steady, geographically diversified growth across the sector.

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