Budget 2026: Hotel industry wants policy boost to meet growing demand

Hotel industry's Budget 2026 wishlist.

• Indian hoteliers urge infrastructure status and easier credit for sector growth
• Industry seeks GST rationalisation, unified clearance, and targeted incentives
• Hotel demand exceeds supply due to project delays and funding issues.

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As Budget 2026 draws close, the message from Indian hoteliers is clear — demand is there but policy needs to catch up.

Domestic demand is outpacing supply, even as new hotel projects face land, regulatory and gestation challenges, which can run into five to eight years, Sarovar Hotels chairman and Louvre Hotels India director Ajay K Bakaya said.

Brokerage firm ICRA estimates the pan-India premium hotel occupancy rate will continue to be in the range of at 72–74 percent in FY26.

Call for infrastructure status

“With the sector contributing nearly 7–8 percent to India’s gross domestic product (GDP), demand is deepening across domestic travel, religious tourism, weddings, Meetings, Incentives, Conferences, and Exhibitions (MICE) and medical travel,” Radisson Hotel Group South Asia MD and COO Nikhil Sharma said.

“But sustaining this momentum requires recognising hospitality as productive economic infrastructure. Hotels anchor local ecosystems — they create jobs, support MSMEs and enable destination-led growth, especially in Tier II and III markets.”

Hotels created 46.5 million jobs and are projected to support 64 million by 2035, Chalet Hotels executive director Shwetank Singh said, adding hospitality yet isn't classified as infrastructure. "That’s a real constraint on scale."

Infrastructure status for hotels has been a long-standing demand that operators say could unlock the sector’s next phase of growth.

“Our foremost priority is securing infrastructure status for hotels,” Noormahal Group chairman and managing director (CMD) Col Manbeer Choudhary (retired) said. “This designation would fundamentally transform our ability to access capital on favourable terms and expand faster, especially when demand from both leisure and corporate travel is strong. Today, funding challenges and project delays are constraining growth.”

Reema Diwan, vice president, design and technical services at Accor India & South Asia, wants infrastructure status extended to hotels and convention centres with investments above Rs 10 crore.

“These are capital-intensive, long-gestation assets. Access to long-term, low-cost finance is essential for new capacity, upgrades and modern convention infrastructure, especially in emerging destinations,” she said.

Easy credit, GST rationalisation

Operational pressures are mounting too. Vitskamats Group CMD Vikram Kamat flagged high costs, talent shortage and rising compliance burdens. His budget wishlist includes GST rationalisation, incentives for green and tech-enabled hotels, easier credit for expansion and focused skill development.

The industry has welcomed the government’s move to grant infrastructure status to hotels in 50 tourist destinations. But, as Federation of Hotel & Restaurant Associations of India (FHRAI) president Surendra Kumar Jaiswal puts it, “We hope this support is expanded across India. Tax incentives for new hotels and higher depreciation can encourage fresh investments and timely upgrades.”

Chalet Hotels' Singh also called for tourism to be placed in the concurrent list to improve coordination between the Centre and states. “That’s how the sector can realistically move towards a $1 trillion GDP contribution,” he said.

Choudhary pointed to the complexity of approvals. A unified single-window clearance system for the many no objection certificates (NOCs) and departmental permissions would sharply reduce both costs and timelines, he said.

The tax structure is another pain point. Homestay brand Ekostay chief operating officer (COO) and co-founder Sohail Mirchandani said the Goods and Services Tax (GST) regime —where room rates attract 12 percent or 18 percent depending on tariffs — creates confusion and operational drag.

“A uniform 12 percent GST on hotels and homestays would simplify compliance and remove price distortions caused by seasonal rate changes,” he said.

Bakaya also urged for delinking GST on food and beverage services from room tariffs to simplify compliance and improve transparency.

Mirchandani called for allowing online travel agents to register under a central GST instead of state-wise filings, a rule, he said, burdens Indian online travel agencies while giving global platforms an edge. He added that GST discrepancies between e-commerce and direct bookings discourage digital adoption and are not in sync with the Digital India push.

Beyond metros

For chains expanding beyond metros, targeted incentives matter. “Support for tier 2 and 3 cities will drive sustainable growth,” OPO Hotels & Resorts CEO Sandeep Basu said.

That theme is echoed across the board. Manglam Group director Amrita Gupta said destinations such as Jaipur need targeted budgetary support for tourism infrastructure, heritage-sensitive development and sustainable hospitality projects to stay globally competitive without losing cultural identity.

Kamat Hotels executive director Vishal Vithal Kamat said the hospitality industry has long been seeking targeted benefits and policy support to streamline operations, improve ease of doing business and strengthen India’s tourism ecosystem. "We are hopeful that the forthcoming budget will address these long-standing concerns in a meaningful way."