The government’s push to encourage hoteliers to build afforable accommodation to plug a 20,000-room shortage for the 2010 Commonwealth Games by offering a five-year tax break for developments in the Delhi region couldn’t have been better timed. But it won’t help tourism in other parts of India.
“The industry was hoping that given the huge shortfall of rooms across the country, the incentive would be extended everywhere,” said Chender Baljee, chairman of Bangalore-based Royal Orchid Hotels Ltd, which is building a business hotel in Noida, a Delhi suburb.
Mid-range hotels as well as convention centres with at least 3,000 seats will be offered a five-year exemption from income tax, starting in fiscal 2009. The facilities must be built and operational between 1 April 2007 and 31 March 2010, just over six months in advance of the Games. The government of Delhi will also receive Rs350 crore for the Games in this Budget.
“The announcement is a clear recognition of the fact also that we need more rooms in this category and not just five star rooms,’’ said Prabhat Pani, CEO, Roots Corporation Ltd, that runs the Ginger brand of budget hotels.
With 4.4 million foreign tourist arrivals in 2006 and millions of domestic ones, the country faces an estimated shortage of 150,000 rooms. The Investment Commission of India estimates that only 50,000 new rooms will be coming in in the next five years. As a result, the current high occupancy rates and room tariffs as high as Rs18,000 a night are expected to continue in the major metropolitan areas of Delhi, Bangalore and Mumbai until 2012.
The Budget also provided a boost to investors in convention centres across India, increased the funds for “tourist infrastructure” in the country by 22.9% to Rs520 crore. Venture capitalists investing in combination hotel-convention centres will be entitled to the same tax benefits as the projects they invest in.
However, many industry representatives Mint spoke with were disappointed that the government did not address rising land prices for hotel plots or limitations on the size of existing hotels.
Skyrocketing prices for land in major cities have made construction of international quality budget hotels tough. For example, a five-acre plot in the Delhi suburb of Gurgaon recently sold for Rs255.2 crore, making it financially unfeasible for a budget hotel.
Hotel industry consultant Manav Thadani felt the moves by the government were largely shortsighted. “Delhi is not India, let’s put it that way.”