 Budget 2005-06: Hotels
FY04 was a landmark year for the hotel sector. Though growth in the first half was slower, the second half witnessed a sharp upturn in occupancy rates. Operating margins also saw significant improvement. However, given the susceptibility to geo-political events, is this growth sustainable? Read more
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Significant thrust on infrastructure development with timelines in some cases
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Specific mention and allocation to improve facilities in seven metros viz. Mumbai, Chennai, Delhi, Kolkata, Hyderabad, Bangalore and Ahmedabad
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Developing Mumbai into a regional financial hub over the long-term
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The impact on the tourism sector as far as the budget proposals are concerned is likely to be long-term in nature. Much hinges upon the execution of outlays.
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After yet another record year of tourist arrivals in 2004, the industry is likely to witness a CAGR of 9% in international tourist arrivals into the country over the next three to five years. Though capacity is expected to grow in select metros, we continue to remain optimistic on ARRs and occupancy levels. Profitability therefore, is likely to improve, as it did in 9mFY05.
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It is necessary that infrastructure status should be approved for hotels with incentives u/s 80 IA of Income Tax Act. There is also need for proactive policies from various State Governments and the concerned land agencies (e.g. DDA in Delhi) for identifying and allotting suitable plots of land for hotels. |
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Although some initiatives have been taken for limited Open Sky policy in Civil Aviation, there is a need to do much more to increase the seat capacity in foreign airlines flying to India. The present seat capacity needs to be doubled over the next 2 years, considering that the outbound Indian travellers and NRIs will take up about 75% of the increase. |
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There should be uniformity in Luxury Tax and Sales Tax rates of all the State Governments. The present rates which vary in Luxury Tax from 0 to 15% (much higher in States where it is on published tariff). |
| Budget 2002-03 |
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Budget 2003-02 |
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Budget 2004-05 |
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Announcement of plans to divest Hotel Corporation of India (HCI) and India Tourism Development Corporation (ITDC) in the next fiscal.
Reduce basic import duty on foreign liquor from 210% to 182%. Expenditure tax to be imposed only on hotel rooms with tariffs in excess of Rs 3,000.
Plan outlay for tourism increased by 50% and 6 new tourism circuits to be identified for development to international standards.
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Expenditure tax on hotels removed (from 10% levels earlier) and continuation of service tax exemption.
Exemption of capital loans from FIIs u/s 10 - 23 G and import duty on foreign liquor has been reduced from the existing 182% to 156%
Development of airports, seaports, railways and roadways.
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Apart from the emphasis on developing the road infrastructure in the country, the FM announced a higher FDI limit in sectors like telecommunication, civil aviation and insurance.
Service tax rate increased from 8% to 10%. Service tax imposed on business exhibition services, airport services and travel agents.
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| [Read more on Budget 2002-03] |
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[Read more on Budget 2003-04] |
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[Read more on Budget 2004-05] |
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| Key Positives |
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| India as a tourist destination: Though India accounts for a fraction of global tourist flows currently, the country is expected to increase its market share over the long-term. The recognition of tourism as an industry in the recent past has paved way for opening up to competition. This, we believe, is likely to shape industry fortunes for the better.
| Infrastructure development: The road development project along with other aspects like airport modernisation and port development is likely to result in increased economic activity. With air tariffs also falling steeply owing to increased competition, the tourism sector is expected to witness increased inflow of foreign tourist, high inbound tourist flow and development of new tourist destinations within the country.
| FDI inflow promising: Though India manages to attract to attract only a fraction of global FDI flow, the long-term potential to attract FDI remains promising. The rapid growth in the service sector in light of various competitive advantages of the country has resulted in increased trade. Outsourcing in select manufacturing sectors is also taking shape, which we believe, will provide a big fillip to the tourism sector.
| Increased competition: In the hotel sector, a number of multinationals have entered/strengthened their presence in the country. Players like Four Seasons are also likely to enter the Indian market in the future. Besides, Indian hotel chains are also expected to expand international presence. A combination of all these factors could result in a strong emergence of the budget hotels. This could potentially lower the cost of travel and related cost.
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| Key Negatives |
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| Slow in implementation: As has been the case before, lack of adequate recognition for the industry despite being one the biggest generator of employment (direct and indirect) has been hampering growth prospects. Infrastructure development, though happening, continues to languish. Amidst improving fundamentals, India could lose out to other countries if the pace is not accelerated.
| Regional hubs developing: As mentioned above, though India has the potential, in the tourism sector, competition is more global. The rapid growth of China, select South East Asian countries, the pace of development in the Middle East could affect India, in terms of its ability to attract tourist into the country.
| Susceptible to geo-political events: Since tourism is a global phenomenon, any adverse developments on the geo-political front are likely to impact global tourist flows. India is no exception to the same, as was evident during events like September 11, Iraq war and SARS.
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