The hospitality industry saw many lows than highs in the last two years due to the impact of COVID-19. But the industry bounced back, with tourists starting to travel again in full swing.
While the sector has recovered from the impact of the pandemic, it is concerned about the high goods and services tax (GST) rates on hotel rooms and limited support from the government in the last Budget (2022-2023).
As the industry is looking at a resurgence in 2023, executives expect Budget 2023-24 to accelerate the growth momentum.
The COVID impact
Pre-COVID, 2019 was considered as the best-performing year for the Indian hotel industry. A year later, things took an ugly turn and 2020 became the worst-performing year.
The impact of COVID-19 on the Indian hotel industry was such that the average occupancy of 65 percent in 2019 dropped to as low as 9 percent during the first half of FY21, impacting the industry’s overall performance significantly.
According to UNWTO (World Tourism Organisation), international tourism was pushed back by Covid-19 by 30 years and full recovery of international tourists has no yet taken place, noted MP Bezbaruah, Secretary General, Hotel Association of India.
The industry suffered a revenue loss of Rs 8,000 crore between March and June 2020, said a report by Noesis, a hotel investment advisory firm.
It added that with the lean performance, it became difficult for hotel owners to operate and service their debts with the subdued income.
The total revenue loss for the sector in 2020 is estimated at Rs 89,813 crore, against the total estimated revenue of Rs 1,58,113 crore in 2019, said a report by consulting firm HVS India and real-estate services company ANAROCK.
"The industry faced mass cancellation of bookings. Salaries had to be paid even with no earnings. Some projects, which were at the budding stage, had to be called off because of the fear of losses. Some hotels even stood at the verge of being shut down. There were job and life losses, creating massive socio-economic issues, whose impact will last for some more time to come," Sharad Upadhyay, General Manager, Crowne Plaza Hotel in Greater Noida, said.
Balancing expenses with a reduced top line took a financial toll on all team members, said Shiv Bose, General Manager, DoubleTree by Hilton Goa, in Panaji. "We also lost some quality talent in this turmoil, and the after-effects of this talent crunch are felt to this day," he said.
Industry loses a lot of talent
It is estimated that the hospitality industry is still facing a 20-25 percentage shortage of quality manpower, and the maximum staffing gap is in the food and beverage (F&B) vertical, front office and housekeeping.
With hotels being shut due to COVID-19, 40-50 percent direct employees in the organised hotel sector were laid off. The Oberoi Group had reduced its staff by 30 percent and let go of 2,000 employees in 2020 while Sarovar Hotels & Resorts had reduced its staff by 40 percent.
As employees lost their jobs, they also lost confidence in the hospitality sector, with many opting for alternative career options. This led to the industry losing a lot of talent.
While the industry is recovering from the pandemic’s impact, with some talent returning, and occupancy and room revenue reaching pre-COVID levels, it is expecting support from the government to boost the growth momentum.
Budget expectations
The industry is subjected to a huge 18 percent GST, without too much input credit (tax paid at time of purchase of goods or services, available as deduction from tax payable), said Tejas Parulekar, Founder, SaffronStays.
"Even though the sector is among the highest employment and revenue-generating ones, it faces a severe indirect tax regime. The industry can generate more demand, if charged only 12 percent GST," she added.
Currently, rooms priced up to Rs 7,500 per day attract a GST of 12 percent and those above Rs 7,500 a day come under the 18 percent tax slab. Starting July 18 this year, hotel rooms below Rs 1,000 also came under 12 percent GST.
The Federation of Hotel and Restaurant Associations of India (FHRAI) had said that it had expected the 18 percent category to come under 12 percent, as that is where it becomes expensive.
The PHD Chamber of Commerce and Industry (PHDCCI), in its pre-budget expectations, said that the government should make maximum GST on hotel rooms at 12 percent.
“The 18 percent GST category for hotels with room rates of more than Rs 7,500 must be abolished and merged with the 12 percent GST category. Gradually, GST should be brought down further, below 10 percent with full set-offs in line with global trends," the industry body said.
HAI's Bezbaruah said that the hospitality industry has been requesting government to give incentive in the form of 'infrastructure status' so that there is increased investments that can bridge the gap in accommodation that the country faces.
Industry demands
PHDCCI has also suggested a two-year tax holiday for businesses like hotels, which have been massively hit by the pandemic and need immense support to grow and prosper.
Hotelier Bose said that the existing taxation slabs should not be increased as any further increase will adversely affect margins. "The government should consider offering some concessions to entrepreneurs, for new ventures in travel and tourism," he added.
Chander K Baljee, Chairman and Managing Director, Royal Orchid Hotels & Regenta Ltd, said that the government is expected to invest $280 million in the hospitality industry in 2023-24. This includes $25 million for the establishment of a National Tourism Office, $20 million for the development of tourism infrastructure, such as hotels and resorts, and $10 million for tourism promotion programmes.
"There are several other initiatives that will help keep the hospitality industry healthy and growing, including investments for providing access to clean drinking water at tourist destinations and for improving access to electricity at tourist destinations, among others," said Baljee.
Mehul Sharma, Founder & CEO, Signum Hotels & Resorts, added that the sector needs support from the government to improve infrastructure for the safety of single-women travellers. Recently, an 18-year-old woman, who was vacationing in Goa, was raped by a minibus driver.
Representatives from FHRAI had met Finance Minister Nirmala Sitharaman last month to seek infrastructure status to the hospitality industry in the forthcoming budget. They had requested that the current threshold of hotels, built with Rs 200 crore investment, get the infrastructure status under the RBI infrastructure lending norm criteria be brought down to Rs 10 crore to give a boost to budget segment hotels.
The FHRAI said that this will help hotels avail term loans at lower rates of interest and also benefit from longer repayment periods.
The association has also sought the continuation of the Export Promotion Capital Goods Scheme (EPCGS) for another 10 years and an extension on the repayment period under the Emergency Credit Line Guarantee Scheme (ECLGS).
In Budget 2022, the finance minister had proposed an extension to ECLGS for MSMEs till March 2023 and had extended the guarantee cover by Rs 50,000 crore, earmarking the amount for enterprises in hospitality and related sectors.
FHRAI has also urged the government to extend the loan term for the hospitality sector for a maximum period and the repayment period be enhanced to 10 years.
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