Unviable to bring up hotels without infrastructure status: Top hospitality association President

Hotels are a high capital industry, return of investment is upwards of 15 years and it is a highly labour intensive industry, the FHRAI President noted.

"They (hotels) don't get lending, credit facilities so they won't be able to build enough hotel rooms. With infrastructure status you are treated like any other infra project like roads. So, lending is one major thing and without better lending it is impossible to build a big inventory. China has 16.6 million rooms. Even if we bundle the unorganised hotel rooms then you can add another 100,000 rooms. However, there is still a huge gap and India remains underserved compared to major lodging markets worldwide."

While Shetty said that the Finance Minister understood their concern, she countered saying that banks are not providing loans because the return on investment (ROI) is long for hotels.

Currently, banks are providing loans for a shorter tenure and for a high rate of interest for hotels and Shetty said that with such type of lending the hospitality industry cannot grow.

GST confusion

Another worry for the hotel industry is the linkage of restaurants with room tariffs if they are part of the hotels. The GST applicable for restaurants is 5 percent. However, if a restaurant inside a hotel has rooms with tariffs above Rs 7,500 then the GST applicable for the restaurant is 18 percent. This has led to notices by the GST department to many hotels, said Shetty.

"Room rates are dynamic. If a customer goes to a restaurant inside a hotel during off season, the GST charged on the bill will be 5 percent. If the same customer goes during peak season and room rates are higher than Rs 7,500 then GST charged will be 18 percent. This is creating confusion not only in the minds of consumers but also within the GST department which has led to many notices being sent to hotels. Notices have been sent to hotels in Karnataka, Andhra Pradesh, Tamil Nadu, Uttar Pradesh, Delhi," he added.

FHRAI is urging the government that the GST rates for restaurants should be delinked from any room tariffs if they are part of the hotels.

Hoteliers are also seeking a flat GST rate of 12 percent across all rooms. Currently, rooms above Rs 7,500 tariff fall under the 18 percent GST slab.

"Our neighbouring countries who all are competitors are at single taxation. So we are losing out on foreign travel. Foreign travellers usually opt for rooms above $80 (Rs 7,500) and here the GST is 18 percent. In large groups, this becomes a substantial amount. After the meeting with the Finance Minister, we also had a consultation with the tourism ministry and pushed them hard on GST reforms to enable more incoming of foreign tourists," Shetty said.

Promote brand India

While India's tourism business showed extraordinary growth post-Covid, Shetty said that it was mostly because of domestic travel. Foreign tourist arrivals (FTA) in India are currently lower than pre-Covid levels.

"When it comes to FTAs, business travel from the US' IT sector has been down, due to geo-political issues and foreign travel has been affected. On the other hand, countries like Sri Lanka, Vietnam, Bhutan are going big on tourism. All these are contributing factors to FTAs in India not coming back to pre-Covid level. We need to promote brand India more," he added.

Shetty also said that there needs to be a greater outlay for tourism and under that mainly for promotion more budget is required.

In the interim Budget 2024-25, the finance minister had increased allocation for the tourism sector to Rs 2,449.62 crore, 44.7 percent more than the revised figure for the current fiscal.

However, overseas promotion and publicity including market development assistance Budget 2024 allocation came down by 97 percent to Rs 3 crore from Rs 100 crore in the previous Budget.