India versus Thailand: Hoteliers seek infrastructure status in Budget 2025 to beat competition

Hotels seek infra status.

As India’s hospitality sector grapples with rising competition from neighbouring countries and a manpower shortage, industry leaders are urging the government to address key challenges facing the industry in the upcoming Union Budget.

Hoteliers are calling for a reduction in GST, improved access to affordable credit, and recognition of smaller hotel projects for infrastructure benefits to boost competitiveness.

They say slow growth in the supply of rooms and one of the highest goods and services tax (GST) structures is making India less competitive compared to some neighbouring countries.

India is grossly under-roomed in comparison to the competing Asian destinations, said K B Kachru, President, Hotel Association of India (HAI).

The current supply pipeline is lower than post-2009 global financial crisis period, noted brokerage firm ICRA Ltd. In the last two financial years, while room inventory increased by around 5 percent, demand grew by 8-10 percent. Premium hotel room portfolio is estimated at 1.08 lakh in FY25.

Infrastructure status

Infrastructure status will give access to low-cost financing, attract foreign investment, and enable development in untapped regions, said S.P. Jain, Founder and CMD, Pride Hotels & Resorts.

Federation of Hotel & Restaurant Associations of India (FHRAI) expects infrastructure status for hotel and convention centre projects with costs starting from Rs 10 crore.

The current criteria for infrastructure status require hotel projects to exceed Rs 200 crore and convention centres Rs 300 crore, making it inaccessible to smaller projects that dominate the Indian market.

The additional criterion that cities must have a population of over one million to qualify creates a significant barrier for tourism development in India, FHRAI said.

"The one-million-population requirement excludes the vast majority of India’s cities, as only 53 cities in the country meet this criterion based on the 2011 Census. This restriction prevents historically significant and emerging tourism destinations from accessing infrastructure benefits, even though these locations have tremendous tourism potential," the hotel body said.

Many towns with heritage sites, natural attractions, or pilgrimage centres are home to populations well below this threshold. As a result, projects in these areas struggle to access financing at favourable terms, limiting their growth and, consequently, the development of tourism in these regions.

More jobs 

The special allocation for infrastructure development especially in Tier II and III cities will boost tourism in the regional areas as well as generate employment opportunities for the youth in their native place, said Manbeer Choudhary, CMD, Noormahal Group.

The travel and tourism sector is a vital pillar of India’s economy, contributing over 9 percent to employment and supporting 40 million jobs which are likely to exceed 62 million in the next decade, pointed out Rajesh Magow, Co-founder & Group CEO, MakeMyTrip.

However, the pandemic led to a manpower shortage in the hospitality sector.

There is a glaring gap in skilled labour, said Sonali Sethi, Head of Strategic Initiatives, Seclude Hotels Home Style, adding that they are training unskilled local workers themselves as there’s no government support for hospitality programs.

Initiatives to enhance skill development through targeted programs for the hospitality sector can help bridge the talent gap and create a robust workforce, noted Tejus Jose, Director of Operations at ibis and ibis Styles India.

Targeted skill development programs are essential to address the industry’s growing talent shortage,” Jain said.

Deepika Sethi, Managing Director, Bright Hospitality, called for investment in skill development particularly in areas such as service excellence, culinary arts, and digital tools. "Support for the adoption of advanced technologies like AI-driven systems and initiatives to boost job creation in Tier II and III cities will enhance competitiveness and regional growth," she added.

Lower taxes

Under-supply and high GST in comparison to the neighbouring countries is driving business to countries like Thailand, Sri Lanka and Vietnam, noted Amit Jaiswal, chief financial officer (CFO), Royal Orchid Hotel.

Reducing the 18 percent GST on hotel rooms above Rs 7,500 to 12 percent will align India with competing Asian countries, said Kachru.

Rationalising the GST structure will not only make travel more affordable for budget-conscious domestic and international tourists but also stimulate demand in Tier II and III cities, where affordability is key, Jain said.

In addition to lower GST rates on room tariffs and food services, a special GST rate for budget and mid-scale hotels will make the hotel sector more competitive and traveller-friendly, Rajan Sethi and Deepika Sethi, Managing Directors, Bright Hospitality Pvt Ltd, said.

For small and mid-sized hotels, Saurabh Gahoi, Senior Vice President, Ramee Group of Hotels, said that improved access to affordable credit and subsidies will drive expansion, particularly in underserved regions.

Magow highlighted that the homestay sector, which is growing well in India, especially in emerging local destinations, needs support. "The government's clarification in the last Budget that any rental income earned by the owner of residential house property shall be treated as ‘Income from House Property’ instead of ‘Business Income,’ can adversely impact the growth of homestays. We request the Finance Minister to review this point."

He added that mandatory state-wise GST registration with a physical presence in every state is adding to the administrative costs and management overhead for online travel agents. This will help put Indian OTAs on a level playing field with international online players who are not bound by similar rules.

Magow also pointed out that there is inconsistency in the GST levy as customers booking a non-AC bus through an online booking platform are charged 5 percent GST, while direct bookings made with the bus operator attract no GST.

Noormahal's Choudhary is also expecting zero GST or receiving a GST refund for foreign guests to increase inbound tourism.

Allowing Indian hotels to charge zero GST or receive a GST refund for foreign guests will be similar to the GST benefits given to Indian software companies on exported services, noted Tarun Gulati, Director, Himalayan Hotels.

Adjusting the taxation rates will encourage both domestic and international visitors, said Ritwik Khare, Founder and CEO, ELIVAAS.

He said that India's success in hosting global events like the G20 and the ICC Cricket World Cup has attracted global brands and investors. "Hospitality players are ready to open a record number of properties across the country, with emerging destinations like Ayodhya and Lakshadweep set to become popular hotspots this year. India's $24 billion hospitality sector is poised for significant growth, Khare said.