Consultancy Firms

Challenging times ahead

Homi Aibara Partner

India's answer to the international consultancy firms, Mahajan & Aibara (M&A) undoubtedly India's leading hospitality consultancy firm in the country at present. Combining expertise with experience, the firm has stood steadfast during the surge of internationally renowned firms in the country. Homi Aibara, partner, M&A throws light on the Indian market

"It is our firm's objective to provide each client with guidance to the solution we believe is best for its unique circumstances. We are committed to ensuring that our advice will be provided objectively, maintaining the highest ethical and professional standards and with paramount emphasis on the client's interest," asserts Homi Aibara, partner, Mahajan & Aibara (M&A).

When it comes to market and feasibility studies, advise on inbound investments, analysis on the hospitality, leisure, travel, tourism and retail sectors, economic and industry studies or financial advisory services, M & A has carved a distinct niche and reputation for itself as a player of reckoning and body of experts with a keen eye on the Indian hospitality markets as well as the international markets.

"The Indian hospitality industry has been witness to some major ups and downs in the last decade. One of the most positive measures has been the withdrawal of expenditure tax, which has a huge impact as the tax was levied both on the rooms and all services offered by the hotel to its guests. In fact, the impact has been so positive that India now ranks as one of the countries which levies minimum taxes on the tourism industry as per a study conducted by WTTC," expresses Aibara.

Aibara believes…

The negative side is that tourism is still on the state list and not on the concurrent list of taxes. Owing to this each state treats tourism differently and the taxes are levied accordingly. "Implementation of the Value Added Tax (VAT) in the tourism sector down the line could play a major role in bringing tourists (business and leisure) out of this nightmarish situation," reckons Aibara.

However, how effective it will be in achieving this objective is still the million dollar question. The biggest single bottleneck to genuine foreign tourists has been the air-seat capacity and that is something tourism has been fighting for. "A study that we did for the Ministry of Tourism (MoT) numerically proves the multiplier effect that tourism would see with increase in air-seat capacity. We have 4.5 million Indians going abroad and less than three million foreigners coming into the country, so there is a major imbalance here. If we were to allow more air-seat capacity, prices would come down, destinations would get more affordable and tourism would actually see a boom," says Aibara.

He reckons that the boom the Indian hospitality industry is witnessing at present can be attributed to the fact that seat capacity has been increased on both domestic and international front. "Once the new low-cost carriers come into the domestic sector and constraints on the larger airlines are relaxed, there is going to be a huge increase in the air-seat capacity which is very good for the country," he adds.

One of the factors that can boost the Indian hospitality industry is the growth witnessed by the IT/ITES and BPO segments, which generate more room nights than any other sector. "On the negative side, even though countries with security problems like Sri Lanka have managed to issue visa on arrival, we are still contemplating the possibility for many years. Though some efforts of simplifying the visa process have been put in place a more concrete solution is needed," suggests Aibara.

On the issue of hotel financing and interest rates, Aibara says, "Till about five years ago we were talking about interest rates, which went into the range of 15 to 18 per cent depending on the strength of the borrower. Now we have interest rates ranging from 8.5 per cent to 11 per cent for rupee borrowers. For foreign currency borrowers the interest rate is even lower than that, making the possibility to financially structure hotel projects more viable than it was earlier."

"On the other hand our financial institutions work on very staid, old and archaic formulae where funding is available during the project period, with a 18 or 24 month moratorium where one pays the interest and then the money in six years quarterly installments, which was not feasible for hoteliers." He suggests that a good option would be to adopt the mortgage formulae for hotels. "Thus, to offer a conclusion, the last decade has been a major learning process for both the industry and policy makers alike. Many positive steps have been taken to boost the hospitality and tourism sectors, however, there is still much left to be achieved," he avers.

Commenting on the current stumbling block to hotel development in the country, Aibara states that land cost forms a major part of the overall investment in a property. "High prices always have a negative impact, which makes mixed-use development more attractive. Especially with Mumbai hoteliers as they can get higher FSI than any other construction purpose. This is the silver lining of the price hike in real estate, wherein the developer can justify their site. The cost of the FSI in turn reduces," asserts Aibara