Synergies at play

The Indian hospitality sector aspires to become the harbinger of India's economic growth with support from the government. By Praveen K Singh

The importance of the tourism and hospitality industries for the Indian economy is apparent. The World Travel & Trade Council cites that the Indian tourism demand will grow at 8.8 per cent from 2004-13, which would place the country as the third-most rapidly growing market in the world, after Montenegro and China.

But sustaining this kind of growth is a daunting task. According to Manav Thadani of HVS International, a long term, sustained growth of the industry depends on how successfully several issues are addressed, issues like old and poorly-facilitated airports, inadequate hotels, poor road and transport infrastructure, high levels of taxation and a bureaucratic visa processing system.

In view of this, the government in its annual budget has proposed an outlay of approximately Rs 570 crore for development of tourism infrastructure, up from Rs 423 crore proposed in the corresponding period of 2006-07 - a hike of Rs 147 crore.

Government's initiatives

With an objective to build up tourism in the country in an organised manner, make it the main engine of economic growth and to utilise it's direct and multiplier effects for employment in an environmentally sustainable manner, the government formulated National Tourism Policy in the year 2002, which is rigorously being followed by the Ministry of Tourism today.

It recently launched the Incredible India campaign for the domestic market and a couple of more are to follow to tap the growing domestic travel. Shailbhadra Banerjee, secretary, ministry of tourism, says, "In the changing scenario, we are bringing out guidelines for classification of apartment hotels, time share resorts and guest houses. We have sanctioned capital subsidy for 43 budget category hotels and interest subsidy for 86 budget category hotels."

The government is also planning to drench equity capital for bracing hotels run by ITDC. Banerjee informs, "We intend to declare a conditional 10-year tax holiday for all tourism projects in the country. While companies would enjoy full tax exemption of up to 50 per cent of the profit, they would be required to re-invest the rest in tourism projects for enjoying tax benefits."

Tourism, which is a state subject, is being promoted discretely by different states and every state has its own policy for the promotion of tourism and hospitality infrastructure. However, towards the integrated development of tourist circuits, the Ministry of Tourism has been extending assistance to states for development of infrastructure. But figures show that in the past, funds under the Central Finance Assistance (CFA) have been used to fund a large number of small isolated projects, spread throughout the length and breadth of the country resulting in the resources being spread very thinly.

Says Banerjee, "The Integrated Development of Tourist Circuits scheme in the 10th Five Year Plan was taken up with the intention of providing speedy and substantial impact. Its objective is to identify tourist circuits in the country on an annual basis and develop them. The aim is to provide all infrastructure facilities required by tourists within these circuits and convergence resources and expertise through co-ordinated action with states/UTs and private sector."

Perfecting PPP schemes

Since the budgetary resources of the Centre alone may not be sufficient for the development of infrastructure projects, the minister for tourism & culture, Ambika Soni, has invited public-private partnership.

This will take budgetary constraints off the ministry and establish alliance between public-private and institutional resources. Large revenue-generating projects for development of tourism infrastructure are also being promoted. Banerjee says, "Large revenue generating projects that can be permissible for assistance under this scheme should be a project, which is also a tourist attraction or used by tourists and generates revenue through a levy of fee - like trains, cruise vessels, cruise terminals, convention centres, golf courses, etc."

State subject

Different states have been offering various incentives and concessions for the development of the sector. Kiran Chaudhary, minister for tourism, government of Haryana, informs that the incentives and concessions that it offers to hoteliers include concession on allotment of land, investment subsidy, upgradation of hotels to international three-star standards, reimbursement of stamp duty and transfer fee, reimbursement of value-added tax, luxury tax and entertainment tax, floor area index relaxation, automatic conversion /exemption from land use zoning regulations, treating hotels as industry for purpose of power tariff, and investment subsidy on heritage hotels.

She informed that the Haryana government is creating a separate fund with sufficient budgetary allocations for sanction of incentives.

However, at ground level grim hindrances come to fore - infrastructure and complex tax structure are just a few. Says Saeed Sherwani of Sherwani's, "One of the biggest challenges facing the industry is the prospect of getting licenses from municipal authorities and getting clearances from the police. The process is tedious for those who would rather worry about preferences and tastes of demanding customers."

It goes for restaurateurs too who suffer from severe tax regime and excise rules. Laments Tarun Rai Arora of Toast by Lazeez Affaire, "Each approval requires restaurateurs to follow set standards on the dining area, training of chefs and parking space, among other things. Corruption resulting from an 'inspector Raj' is widespread."

Hoteliers' buzz

On the issue of multiple tax structure, the industry has been demanding a uniform tax regime and a single-window clearance. There is a need for composite tax in place of multiplicity of taxes, claims Rajindra Kumar, president of Hotels & Restaurants Association of Northern India (HRANI), who says, "I have initiated a dialogue with the department of tourism, government of India to have a single tax structure."

He adds, "As we talk about rationalisation of taxes, multiplicity of taxes, and tourist transfer taxes from state to state, let us start this drive through the government of India within these nine states of northern region, to be able to follow a single tax regime as is being practiced in the European Union. For example, luxury taxes vary to a great extent from state to state. Similarly, tourist transfer taxes are again a big pain."

For long time now, the hospitality fraternity has been consistently demanding the industry status to the hotel industry, but the government has not paid heed. Rajesh Mishra, president of Federation of Hotels & Restaurants Association of India (FHRAI), says, "To get the industry status, the Centre must look at the Industrial Development & Registration Act 1956 to give benefits to the hotel sector. To meet the rising demand for hotel rooms in the country, the government must make improvements in this act."

Talking about bringing in equal opportunities for each industry player, Mishra calls for the public-private partnership model, "or else those who have wealth will become wealthier and rest will be left behind in the race".

More bonanzas

In order to build decent hotel infrastructure, the ministry of tourism has decided to give financial support of up to Rs 1 crore to a few chosen properties. The funding will be offered for building of new rooms in the one, two and three-star category hotels and renovation of old ones in the heritage category.

A senior official in the ministry informed that these heritage properties will be given Rs 3 lakh each for repairs and maintenance. This will be subject to a maximum of Rs 1 crore for a single heritage property.

Similarly, two and three-star category hotels will get Rs 3 lakh for each new room constructed while a three-star property can obtain a maximum of Rs 1 crore. The top figure in case of two-star hotels is Rs 75 lakh. For a single-star hotel, the figure is Rs 2 lakh per room constructed, conditional on a maximum of Rs 30 lakh.

The money would be paid only after rooms or the overhaul of the property is complete, which will also be checked by an inspection committee. For the current fiscal year, the ministry has allocated Rs 20 crore. But the ministry can generate additional fund through a supplementary grant by the Finance Ministry.

Tax sops

In the Budget 2007, the finance minister P Chidambaram addressing the demands of the Tourism Ministry and in view of the upcoming Commonwealth Games in 2010, announced five-year tax holidays for new star-category hotels and convention halls coming up in the National Capital Region by 2010. On the insistence of Tourism & Culture Minister, Ambika Soni, the Finance Minister also approved similar tax sops for hotels coming up in the 19 districts of Buddhist circuit.

The recent grants offered by the MoT are in fact a provisional arrangement and will be available for a period of one year awaiting the announcement of the Eleventh Five-Year plan. Once the plan is decided, this provision will be extended to the full five-year period. The Planning Commission has already okayed this interim arrangement.

With the private sector dynamically involved with tapping the growth potential of the sector, and hotels moving towards international tie-ups, an exclusive breed of investors are getting into the sector. The entry of real estate players has intensified the market. However, hoteliers believe that the government's active participation is necessary to attain the required room counts in the country, which can boost the growth of the tourism sector further.