The events that took place in the last few years on a global level have had a devastating effect on the entire U.S. economy and resulted in a loss of trust in every business. Under this screen of mistrust, even small events that cannot be possibly foreseen can now trigger an avalanche of instability.
However, India is one of the places where the economic system did not fail. One of the sectors growing in a sustainable manner is the hotel industry in India. The figures show an annual growth rate in the number of foreign tourists arrivals in India to be 5.6 percent and a growth rate of 6.9 percent for domestic tourists’ visits. This shows equilibrium and the existence of growing domestic travel market that stabilizes the industry against threats from the foreign visitors.
The Indian government launched the “Incredible India” campaign in 2002 to promote toursim. It adopted tourism and foreign investments as high priority, regulated tax exemptions, and announced tax reductions to encourage investments.
India’s rich cultural heritage is one of the strengths that the Indian Hotel industry has, coupled with the opportunity of higher interest subsidy by the government for hotel projects that are set up in special areas and specified destinations. This reduces the regional concentration in the hotel industry in India and now, the industry has started taking advantage of this incredible cultural heritage, which was never exploited fully before. Influx of MNCs in the country after liberalization has led to a flurry of industrial activity in the country and thus an increased demand for the hotel. As the Indian economy is still growing, it still needs investments in the hotels.
Introduction of the Capital Subsidy scheme for the Heritage class of hotels reflects the old glory and grandeur of India. Most of the havelis and mansions of ancient times have been turned into Heritage Hotels, which provide the tourists with an opportunity to experience royal pleasure in a traditional ambience. Most of the Heritage Hotels in India are concentrated in the princely states of Rajasthan, Delhi, and Madhya Pradesh. You also have the “Palace on Wheels,” which is rated as one of the top ten luxury train journeys in the world. It offers you a heart-rending trip to the splendid forts and palaces of Rajasthan in just seven days. On board the Palace on Wheels, you can relish the lifestyles of the Kings of yore, while listening to the silent tales of glory and valor told by the majestic forts and splendid palaces of Rajasthan. They also provide Palace on wheels tours to various destinations.
Coming back to Hotels, the present occupancy rate is 70 percent, which is higher than that of 50 percent, five years ago. Revenue per available room is $1.38 per room per night, with a growth rate of 19 percent in five years. The budget and mid-market segment have experienced major growth. Historically, the mid-market has been run by independent owners with chains forming only 20 percent of the nearly 30,000 rooms’ inventory. These facts demonstrate that there is no looking back for the Indian Hotel industry and they marching towards expected growth.
The possibility of sustainable growth is offered by the internal market. There is influx of foreign tourists too, but they fluctuate, as their visits are dependent on the world economy. Therefore, the domestic market is more lucrative and appears as a more sustainable factor for the Indian hotel industry. Industry surveys indicate that more than two-thirds of mid-market hotel guests are domestic business travellers. Middle level managers of large corporations and senior managers or owners of smaller companies’ frequent mid-market hotels.
Studies made by Cedar show that in 2010, a latent demand of 38,000 rooms will persist in this sector and will grow if major investments will not be considered.
Building middle class hotels that are more functional, i.e., they offer required accommodation in times of need, is more sustainable than building luxury hotels or low budget hotels. This is keeping in mind the future and also the social, economic environmental factors. They do not produce as much wastage as a luxury hotel, do not have a large footprint and because of this, they do not cause much damage to the landscape. They offer better conditions than low budget hotels, which sometimes offer very poor staying conditions.
They do not need expensive design or very expensive materials and are spread across many important locations.
They address the needs of a large population because they are affordable, while offering the necessary conditions for a civilized stay.
The statistics show that there is latency in demand.
The Indian hotel industry is a developing one and has trends like dual pricing (Indian and foreign tourists). The change of governments over the past years has already led to a slowdown in foreign investment, disparity in taxes charged by various states and regional concentration of hotels.
However, at the same time, the Indian hotel industry is characterized by continuous inflow of tourists in the country. India’s rich cultural heritage has led to the declaration of the hotel industry as a “High Priority Industry” by the government and various incentives/concessions have been extended by the government.
So, any investment in the Indian Hotel Industry should be carefully balanced in order to fulfill the goal of sustainable investment.
Zlati Stoicef is a Sustainability Analyst with Solaron Sustainability Services. Solaron (www.solaron.in) is a niche Sustainability / ESG research firm with a global team of 60+ Analysts present across several Emerging markets like India, Brazil, China, UAE, Mexico, Russia, Eastern Europe and Africa.
