Addressing a crowd of potential non-resident Indian hotel investors in February, Himmat Anand, the co-chair of the tourism committee of the Federation of Indian Chambers of Commerce and Industry, offered an overview of what they can expect in the Indian hotel market. But Anand said he has no idea how the ministry of tourism determined that India needs 1.5 lakh more hotel rooms by 2010.
That should irk the ministry officials responsible for churning out the numbers. M.N. Javed, deputy director general at the ministry of tourism, staunchly defends the ministry’s estimate and how it has arrived at it. “We are professionally equipped... No one should question the assessment of the ministry,” he said.
Officials from minister Ambika Soni to down have been touting the number that the ministry came up with in December 2006 as a reason to create more hotels, promote conversion of residences to homestays, and offer tax breaks to hoteliers.
While most analysts and industry experts agree on a current room shortage in the country, both the ministry’s number and the lack of transparency in disclosing the methodology have left them befuddled. The ministry’s figure “seems to be really on the higher side. I really don’t know how they calculate” the number, said Binaifer Jehani, an analyst with credit ratings and research firm Crisil Ltd.
oom numbers:The ministry’s estimate of a shortage of 1.5 lakh hotel rooms by 2010, has been touted as a reason to create more hotels, promote conversion of residences to homestays, and offer tax breaks to hoteliers.
She tracked hotel room supply and demand, but only in the premium segment, in 12 major Indian hospitality markets from April 2004 to March 2007, and has just switched to covering hospitals.
The 1.5 lakh number has found its way into posterity. It is used in answers to Parliament questions, in public statements by the ministry, and may have helped stoke a recent income-tax break for newly constructed two-, three- and four-star hotels in the Delhi area.
Still, Javed declined to specify the formula the ministry used to calculate the estimated shortage. However, he said that the ministry’s calculation is based on estimates of supply, demand and projected demand. And the ministry officials’ sources are their numerous interactions with hoteliers, airlines, tour operators and state governments, with some data thrown in. He wouldn’t say how much. The data comes from both the government’s own numbers and industry bodies such as the Federation of Hotel and Restaurant Associations of India (FHRAI).
FHRAI conducts an annual survey of the Indian hotel market, from which it generates its data. The most recent report, conducted in collaboration with hospitality consultant HVS International, relied on responses from 1,151 member hotels in 19 cities. It estimates the shortage at 20,000, lower than the government’s figure.
The ministry also takes into account “certain trends,” said Javed, such as price increases for rooms, higher occupancy levels and expected growth in visits by foreign tourists. For example, there was a 13% increase in arrivals from abroad in fiscal 2007 from a year ago, according to the ministry.
Contrast this with the methodology employed by Crisil, even though it collates data for a more niche segment and for a smaller universe. It says it relies on hard data directly from hoteliers in premium segments, on the number of incoming projects and direct evidence from visiting project sites in cities such as Pune. That, in turn, is used to determine the supply, demand and projected demand in the markets that they track.
For example, Jehani said the supply of rooms in the 10 cities and tourist hotspots Goa and Kerala will be 41,600 by 2010-11, at an estimated occupancy rate of 73%. On that basis, she estimated demand for rooms in fiscal 2011 at about 30,400.
Without looking at the budget segment in the same depth, said Jehani, it would be impossible to provide a countrywide figure for a room shortage as the ministry has done.
Javed says for its estimate, the ministry did not conduct a survey, but arrived at “an assessment” based on its day-to-day interactions. Among the biggest gaps in the ministry’s methodology is that it does not include an unknown number of rooms in the unorganized hospitality sector in existing supply estimates. It is, though, pushing for greater regularization of guesthouses and other such facilities in this sector that consumers use, which would allow it to create more accurate shortage estimates.
The story of the acute shortage does not reflect the experience of some travellers either. Last week, Israeli tourist Maayan Friedman, 22, and her three friends walked into a room in a guesthouse in Delhi—reputedly one of the tightest hospitality markets in the country—for Rs500 per night the same day they showed up.
The ministry is responding to the concern in the industry and among analysts that its figure may be unreliable. Javed said that the ministry is contracting with a private organization to conduct a more thorough study of the hospitality markets of 100 cities. He likened the effort to conducting an exit poll to determine the winner of an election.
Jehani agrees that it makes more sense to look at the markets of individual cities such as Delhi, Mumbai and important state markets such as Goa and Kerala than to offer a blanket number for the whole country.
Hotelier Anthony South takes criticism of the ministry’s estimate with a grain of salt, though. “The challenge at any time with those sorts of projections is the difficulty of forecasting future supply and demand,” said the senior vice-president of development and asset management at InterContinental Hotels Group Plc.
South said his company does not maintain an India-wide estimate for expected room shortage, but looks at it market by market.
However, some analysts have even gone so far as to say that the room shortage will be gone by 2010-11 because of incoming supply and demand. “On an overall basis, this may not be as big a concern as it is today,” said Pratik Dalal of Emkay Share and Stock Brokers Ltd, citing an increase of 60,000-1 lakh new rooms coming into the country.
Prashant Gopal contributed to this story.