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10 major hurdles facing India’s hotel sector
January 18 2013

For every opportunity exists a challenge in this burgeoning hotel industry, according to speakers and panelists during the Hotel Investment Forum India.

Highlights
  • The most oft-cited challenge is the lack of skilled labor.
  • A given hotel development can require between 70 and 120 permits.
  • The incredibly high cost of land renders many projects unviable.  
By Patrick Mayock
Editor-in-Chief
patrick@hotelnewsnow.com

GURGAON, Haryana—Amid observations of unbridled growth and seemingly endless potential, hoteliers speaking during the 2013 Hotel Investment Forum India focused most of their attention on the country’s equally abundant challenges.

There were more than enough of them raised during keynote presentations and panel discussions alike during the first day of the event, which was held at the Leela Kempinski Gurgaon Delhi, a hotel just outside New Delhi.

The most commonly cited obstacle was oversupply, which has outpaced steady gains in demand and put a damper on hotel performance in recent years.

Including oversupply, speakers raised several other challenge as well; nine of which are presented here in no particular order.

1. Lack of skilled labor
In a country where branded hotel supply has tripled during the past decade, a quality workforce has failed to keep up, speakers said.

“The biggest challenge is to create skills,” said Amitabh Kant, CEO and managing director of the Delhi Mumbai Industrial Corridor Development Corporation, during a session titled “Getting back on track.”

His comments echoed those of Vijay Thacker, director of Horwath HTL India, who earlier in the day questioned the commitment of public and private institutions to address the issue.

“Human resources is critical for our industry. Are we training our people adequately?” he asked attendees during a session titled “Outlook for the Indian hotel market.”

2. Utility costs
“Energy costs are hurting every hotel,” Thacker said, pointing to “arbitrary” increases in expenses in many Indian states.

“That’s going to be a huge noose around the industry,” he added.

Ashish Kumar Singh, secretary to the chief minister for the government of Maharashtra, addressed the complaints during a panel discussion titled “Solving the challenges and creative initiatives for growth.”

Costs have risen in the Indian state of Maharashtra because it promises its residents uninterrupted power 24/7. To do so, however, the government buys extra power reserves from other states in the country’s utility exchange, which adds costs, he explained.

But, as Singh pointed out, the extra utility fees—which can range from 6% to 7% of a hotel’s total operating expense—is still less expensive than installing and operating an on-site generator.

3. Taxation
“Unfortunately hotel projects are being viewed as juicy pieces of enterprise through which the maximum can be extracted through taxes or otherwise,” Thacker said.

4. Airlift
Like many of its fellow emerging countries, India’s airlift lags growth in demand, several speakers said.

Kant called on the government to “keep opening the skies” to stimulate economic growth. Because India is a long-haul destination, travelers typically stay longer and spend more money in the country than they do in other destinations, he added.

5. Capacity building
India lacks the taxi drivers, tour guides, travel managers and other key positions necessary to facilitate travel—a challenge Kant referred to as “capacity building.”

6. Not-so-‘Incredible India’
India’s highly-regarded “Incredible India” tourism board has generated a significant amount of global inbound travel, speakers said. However, the message must evolve or risk becoming stale.  

“You need to constantly, aggressively … unleash new campaigns into the market,” Kant said.

To compete on the global marketplace, new campaigns must target niche sectors and segments within specific markets, he added. And to do so, they must receive more funding from the private sector.

“Branding of a country cannot be in the hands of only the government …” Kant said. “This has to be a private-public partnership over a long period of time. The private sector has to play a far greater role.”

7. Cost of land
The rapid rise of development during the past decade has seen land costs skyrocket, sources said. The outrageous prices can now account for upwards of 45% of expenditures for hotel construction—or higher when plots of land are opened via auction.

“Bidding of land in urban cities for hotel purposes is a no go,” Singh said bluntly.

Singh said an alternative option would have state governments identify plots for hotel development and offer them to investors at a discounted price in exchange for revenue sharing. The arrangement has found success, as long as the deal is structured in a transparent, competitive manner, he added.

8. Government red tape
Any given hotel project requires 70 to 120 permits, said Nikhil Desai, director of tourism for the government of Goa.

Not only does this web of bureaucracy add costs, but it extends the typical development cycle to five or seven years, sources said.

9. Vying for visas
India has made some headway in making visas more accessible, but the government still has a long way to go, according to panelists.

 

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