In Focus

Lost in red tape

India's outdated rules force hoteliers and developers to demand immediate change. By Sanjeev Bhar

For any new hotel project to commence on time in sync with company projections in India is a big achievement. Despite the fact that India is reeling under a severe room shortage and that there is an intrinsic desire on part of developers and the government alike to get the projects going, there is an invariable delay leading to loss of both capital and time.

A critical issue is that of license. The hotel sector at present in India is driven primarily by the private sector, which complains of bureaucratic delays that lead to increased lag time between project decisions and its operation. Moreover, the system does not offer any single window clearance facility in India, especially in the case of hospitality.

Sanjay Bansal, MD of Ambit Corporate Finance, complains, "We hardly had any single window clearance system in our country owing to the bureaucratic procedures. It is never in the hands of the entrepreneurs to get their projects going according to plan. It is always the external factors that fail them in living up to their own objectives." Many hoteliers have given up hope of ever having a streamlined approach to get a hotel project off the ground - from filing tenders to bidding for land and getting clearances by authorities for the necessary construction.

Before starting operations, as may as 104 licenses need to be obtained from the municipality, sales tax office, IT departments, excise and professional tax office to agricultural house, ESIC, provident fund registration and so on. According to Ajit Thomas, director of Depa India, in reality one needs more than 104 licenses.

Delays in getting these approvals lead to problems in funding the project externally. Thomas says, "In most cases, the clients/developers do not table the approval process nor the manner in which it is being handled to the investor. The client normally appears over-confident because it's the least of his worries and he has the connections to get it in time. So the funding agencies get the opportunity to dwell on the subject." Therefore, in a situation when there can't be an overnight change in the government policies, it is better for hoteliers to plan ahead in order to avert any project delays.

Pro-tourism initiatives

Licensing a new property, especially if there is no past to support a proposal, becomes a little harder. According to Jai Singh Rathore, who is planning two properties in the upscale home-stays category in Jaipur and Udaipur, says, "The Rajasthan government has been proactive in terms of initiating a fast process of approvals which is great."

He refers to the state's forward-looking tourism policy that waived off land conversion charges for projects for regional development. "Since I am a novice looking to develop properties from a scratch, I am yet to go through the entire process from conception to construction to operation. But what I hear from my industry colleagues is encouraging. For small to big projects, the state government is making approval procedures timely through a number of sub-committees that ensure timely actions," he explains.

Executives at hotels having international marketing/management alliance with foreign brands refused to comment on the way authorities work and sanction licenses. Nonetheless, there is strong sentiment prevailing in the industry. Even international players who participated in the fourth Hotel Investment Conference South Asia conference held in Mumbai recently identified India as a difficult market to bring projects to. It was felt that different states governed by different policies pose challenges at every step for the foreign investor in hospitality.

Government's failure to respond

The government on the other hand is taking some drastic steps to help the sector. Feels Rathore, "Although the state governments are doing their bit there is a need for radical changes because bureaucratic delays are still prevalent."

Public-private partnerships have brought in some relief. Remarks Bansal, "For the new greenfield projects under the public-private partnership format, we expect things to be better. There is substantial investment from private parties and vested interest on part of the government." But that is not a guarantee that time and money invested by the operators would lead to facilitation of projects.

For example, the uncertainty revolving around the Railway Ministry Rail Ratna project made interested private companies wary of public-private partnerships. In the above-mentioned case, the land sites meant for hotels were under dispute between IRCTC and RLDA. Therefore, the public-private partnership model may not be for every private player. Remarks a hotelier who has stake in one of the Rail Ratna hotels, "Even though the Rail Ratna project is one of the many cases that went wrong, it was a prominent one nonetheless and has set a bad precedence."

According to Patu Keswani, CMD of Lemon Tree Hotels, which is coming up with more hotels in the next three years, getting the land approved for hotel use is a major challenge. "It is a state subject and the scenario in two cities in two states - Hyderabad (Andhra Pradesh) and Ahmedabad (Gujarat) - is good." He is miffed by the fact that it takes six months to get an approval because if managed appropriately "this process should not take more than 45 days".

Since the country has several outdated rules that do not fit the way business is done these days, several rules are broken for convenience. Thomas says, "This happens in terms of setbacks, parking, heights, FSI rules, etc." This adds to the complication and also raises the question whether having a governing body like the one in Singapore - Hotel Licensing Board - would be a good option.