‘Hospitality needs to be granted industry status’

FHRAI president, Rajesh Mishra, talks to Praveen K Singh about the challenges facing the Indian hotel sector.

What role, according to you, does the sector have to play in the country's economy?

Hotels are the barometer of the tourism industry as the share market is of the economy. Inbound tourism to India has shown a healthy growth and we will go past the four million international arrival mark for the first time in 2006.

However, the focus has to shift towards domestic travel, which is the real driver of hotel business in the country. We are suddenly amongst the most expensive hotel markets in the region and we need to develop our infrastructure first. The current shortage in rooms is pushing peak season rates for basic rooms as well as attracting some of the world's best-known names in hotels to invest heavily in the country. Relatively the rooms supply has only slightly increased in the key cities. This has led to a sharp increase in average room rates in metro cities.

Which region do you think has shown dynamic growth?

The western region has been the most vibrant one, more so because of the financial capital. In the north, Delhi-NCR will have many new hotel chains due to Commonwealth Games. Otherwise metro cities in the north have more or less reached a saturation point.

Sadly, eastern India is slow in development, but the state governments have been announcing industry-friendly initiatives of late. The southern states have joined the bandwagon but the only hindrance has been the provincial language.

How do see the growing manpower crunch in the sector?

The shortage of 1,00,000 rooms will go hand-in-hand with the employment opportunities. While a five-star hotel employs around 800-1,200 people, a three to four-star hotel has about 200-300 employees. The demand-supply gap can be seen more in the middle level segment as compared to the low or the high level segments.

With the entry of real estate developers like DLF, Emaar-MGF and Unitech, the growth of real estate will continue upwards rapidly. This will pose a big challenge to hoteliers in obtaining land for hotel projects at reasonable rates.

What are the challenges that this sector faces?

The long-awaited demand for the hotel industry to gain infrastructure status under Section 80 IA of the Income-Tax Act should be met. The Centre should confer industry status on hotels so that hoteliers can enjoy the benefit of power at industrial rates and other benefits applicable to industries. Uniform taxation policy must be followed by all state governments and Union Territories on VAT, luxury and entertainment tax and state excise duty and resort destinations developed, not only for families but also for the MICE segment. An opportunity which has not really been tapped to its fullest is the extended-stay segment. The government should also encourage hotels to look at the concept of condo hotels, which will help rationalise the steep prices of land and make hotels more affordable to build.