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Monday, 21 Oct 2013
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Infrastructure Status, a silver lining for Hotel Industry


Hotel projects were included in the Ministry of Finance’s harmonised master list of infrastructure sub-sectors in October 2013, which is equivalent to granting infrastructure status to the hospitality industry. This move comes as a major relief to the hotel industry which has been languishing under the prolonged economic slowdown.


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As per the government notification, hotel projects costing more than Rs 200 crore will be entitled to long-term loans with repayment tenures of 15 years at lower rates of interest, higher debt-to-equity ratio, access to more funds through low-cost external commercial loans and financial assistance from specialised agencies such as IDFC, India Infrastructure Finance Company and the new Infrastructure Debt Funds. The project cost excludes the cost of land and lease charges but includes interest during construction.


Star hotel projects generally have a long gestation period and are capital intensive. The infrastructure status extended by the finance ministry will help such greenfield projects to borrow funds with extended repayment period of 10-15 years and lower interest rate of around 3-4 per cent as compared to the current 12-13 per cent.


is the 3rd largest hotel and restaurant association in the world and the apex body for the hospitality industry in India.
The hospitality industry in India is struggling with issues like high tax rates and complicated clearance norms. As per the Federation of Hotels and Restaurant Association of India (FHRAI), compared to the seven per cent tax in Singapore or Malaysia, a customer at an Indian five-star hotel ends up paying as much as 40 per cent tax. Further, for any new hotel projects, especially planned in the coastal region, it takes around 24 months to secure all the necessary permissions. In most of the south Asian countries, the entire project gets completed within 18 months.



The harmonised master list of infrastructure sub-sectors which was approved by the Cabinet Committee on Infrastructure in March 2013, included only three-star or higher category classified hotels located outside cities with more than one million population. RBI’s infrastructure lending list also followed the same criteria. As this policy left out around 95 per cent of the hotels in the country, the conferring of infrastructure status failed to have any major impact on the flow of fresh investment into the sector. The recent decision by the Central Government has not only set right the policy but will also benefit hotel projects across the country.


The month was also quite eventful in terms of projects with the much awaited JW Marriott hotel opening at Aerocity in New Delhi. The 523-room JW Marriott is the first hotel to be opened at Aerocity. Royal Orchid Hotels is also planning to expand its operations in Tier-II cities of the country. The group is set to expand its room inventory from around 1,900 keys to 4,000 keys by 2015. Budget hotel chain Ginger, a division of Tata group’s Indian Hotels has also announced plans to add 40 more hotels in the next three years to take its total tally to 70. Indian Hotels had earlier announced opening around 15 Vivanta hotels, its upper upscale brand and 14 Gateway properties, its upscale/mid-market hotels and resorts brand.


As per Indiabulls, Foreign Tourist Arrivals (FTAs) in India during 2012 were 66.48 lakh with a growth of 5.4 per cent as compared to the FTAs of 63.09 lakh during the year 2011. This trend is predicted to continue in the future with Indian hotels expected to invest Rs 1.3 trillion for building 180,000 classified guest rooms by 2017. Thus, given the current liquidity crunch, there is a need to announce more proactive policy actions along with better implementation to revise the investor sentiment in the Indian hotel industry. This will help in channelizing huge investment in the tourism sector and will help bridge the shortfall of hotel rooms.


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Quote of the week:


Vivek Nair_FHRAI_ProjectsToday

"In the present high interest-rate environment wherein the industry is also witnessing a temporary demand-supply mismatch on account of the economic slowdown, we had been persistently articulating that proactive policy action was imperative to insulate the requisite long-term investment in the sector from cyclical macroeconomic volatility."

Vivek Nair, Honorary Secretary,
Federation of Hotel and Restaurant Associations of India (FHRAI)


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