Mumbai: India’s hotel industry is pressing for inclusion of hotels in the infrastructure sector category, enabling easier and cheaper access to bank loans, an industry body said, ahead of the upcoming interim budget.
“Currently hotels are clubbed along with real estate business as speculative,” which does not entitle it to priority lending by banks, the Federation of Hotel & Restaurant Associations of India (FHRAI) said in a statement.
Non-priority lending by banks and institutions at higher interest rates leads to higher project cost and room rates, it said.
“We have asked the hospitality sector to be given infrastructure status. This industry is a high-capital-base industry. It requires lot of money to be invested,” said S.P. Jain, managing director of the Pride Group of Hotels.
“The central bank has classified hotels under the real estate sector. Banks are asking for very high rate of interest. We want to be removed from the real estate categorisation,” Jain, who is also a executive member of FHRAI, said.
The hospitality sector, hit by the economic downturn and the militant attacks in Mumbai in November 2008, has seen cancellations and a fall in occupancy levels, with top hotel chains reporting a steep fall in income and profits.
Occupancy rates are likely to fall to 62% in 2008/09 from 72% in 2007/08, rating agency Crisil’s head of research Sridhar Chandrashekhar said.
Occupancy rates are expected to fall to 47% in 2009/10 and would “begin to recover only at the end of 2010/11,” he added.
The beleagured industry has sought tax incentives as given to service exporters to increase hotel capacity and tourism infrastructure.
The hospitality sector needs Rs400 crores to create an additional 150,000 rooms, ahead of the Commonwealth Games in 2010. As per FHRAI estimates, 10 million foreign tourists are expected to arrive by 2010.
The industry is also seeking extension of a five-year “tax holiday” to 10 years for all categories of hotels throughout the country.
The tax holiday was introduced in 2007/08 to cover hotels up to the 4-star category in the National Capital Region for the Commonwealth Games. The benefit was extended to hotels in several other regions of the country in 2008/09.
The industry body has also sought rationalisation of taxes such as luxury tax and sales tax, levied by state governments.
The 2009/10 interim budget will be presented on 16 February.