Abstract Name of the Journal: International Journal of Culture, Tourism and Hospitality Research (eJournal by Emerald Insight) Hospitality is the defining feature of India and Indians. In the era where national boundaries are fading fuelled by rapid movement of culture, capital and knowledge across borders, hospitality industry has emerged as one of the largest employers in the world. It is second only to the oil industry, in terms of turnover and exchange of foreign currency. The Indian hospitality industry is growing at a rate of 6% and is expected to reach INR 230 billion by 2015.
It contributes around 2. 2% to its GDP. According to The Federation of Hotel and Restaurant Association of India (FHRAI), this industry employees 24 lakh people, which is around 8. 78 % of the total employed population in India. This makes it one of the most sought after industry for the cross fertilization of cultures. The hospitality industry is a cluster of fields within the overall service sector that includes lodging, restaurants, event planning, theme parks, transportation, cruise line, and additional fields within the tourism industry.
Hotels and restaurants would be the key focus of the article revolving around the phenomenon of the liberalization, the tangible trends it has adopted and intangible prospects it has provided. While on one side there has been an immense advancement in technology and global capital market, on the flip side even a microscopic change in other economies has a cascading effect to the industry. Information like sector status, operating performance and hotel classifications will be supplementing the fundamentals. The numerous initiatives taken by the government to unlock the potential has helped to prevent the brain drain to an extent.
In fact, with globalization and liberalization, top talent from the developed countries is increasingly considering working for the Indian hospitality industry. Is it the right time to “Check In”! “You will not get a doomsday story from the hospitality sector, because there isn’t one,” says Chris Moloney, Chief Operating Officer, South West Asia, and India head at IHG. Competing in today’s global market is intimidating. In 2001, after much debate, FDI in this industry was increased from 74 per cent to 100 per cent through the automatic route.
Although after this major reform, the inflow of FDI in the hospitality industry has been negligible accounting of about only 1. 5% per cent of the total FDI of $50. 8 billion accrued by the country. Figure 1: FDI inflow in the hospitality sector in India Source: Ministry of State for Tourism, March, 2012 Liberal Growth Hotels, resorts, restaurants, theme parks, cruise line, and other services like event planning fall under the territory of hospitality industry. Today the industry is growing at a flat rate of 5. 5-6% and is contributing about 2.
2% to the annual GDP of India. Several drivers like the strong economic recoveries coupled with several initiatives taken by the government have led the industry to sustain this growth. Need for liberalization was noticed due to the under-performing government run hotels which were then privatized and Foreign Direct Investment (FDI) was let in, after which the industry showed a remarkable growth of 10. 1% in 1992. Since the new liberalized economic policies were introduced, India has reformed itself into a polish of global attraction.
The three major political drivers that led to the formation of a liberalized sector were grant of 100% FDI under automatic route, approval of hotels in the project stage and tax holidays in respect of hotels. Other regulatory drivers like that of abolition of Customs Duty on import of capital infrastructure, technology, and beverages, Fringe Benefit Tax exempted on sales promotion including publicity, use of hotel, boarding, aircraft, festival celebration, etc and exemption of Luxury Tax and Sales Tax for 5-7 Years for new projects.
The path to a liberalized industry was not just achieved by the regulatory drivers but were coupled with various external and internal drivers such as strong GDP growth and tourist arrival statistics, tourism campaigns led by government like that of ‘Incredible India’, international events like that of ’Indian Premier League’, ‘Indian Grand Prix’, ‘Commonwealth Games’, and the rising disposable income of the economies at large.
India in its journey of two decades since liberalization has come a long way and has bought itself second in Asia-Pacific only to China in terms of successful hospitality although it is ranked as 12th in Asia-Pacific in terms of the world’s attractive destinations. Today this industry thrives on the booming market of hotels and restaurants, as other services which it gathers are generally brief and discontinuous. Hotel industry: A Glance In the world of emerging business and corporate culture, the hotel industry is setting up a place for itself, with its budding appeal and string of career-building opportunities.
The history of Indian Hotel Industry dates back to the era of World War II, during which most hotels in India were developed in locations that were frequented by the British and Indian aristocracy. During this period major development can be acknowledged to individual entrepreneurs, with only a few companies owning hotels in India, such as The Taj Group-Indian Hotel Company (owned by J. R. D. Tata) and Faletti’s Hotel, East India Hotels-Oberoi Group. The Hotel Industry has come a long way from then to now, owing to various factors, most importantly the various changes in policies by the government.
At the end of 2010 the Indian hotel industry’s worth was estimated around US$ 17 billion. With Foreign Direct Investments (FDI) inflows marked at US$ 3450 million from April 2000 to July 2012 towards the hotel industry’s contribution to the Indian economy,a lot of major hotels have announced their plans to expand their footprints in India, result of which the domestic hospitality sector is expected to see investments of over Rs 26,000 crore by 2017, with many international brands making their presence in the country in the next few years.
Umbrella of Hotels The hotel industry in India can be divided into segments namely Star rated hotels, Heritage hotels, Budget hotels, Resorts and Clubs and unclassified hotels. The star hotels are further classified into six categories: Five star deluxe, Five star, Four star, Three star, Two star, One star. However, the 3-star, 2-star, 1star and unclassified hotels in India are spread across the country and are highly dispersed in nature, whereas, the upscale, mid market and heritage categories are highly structured.
Moreover Travel is not anymore limited to the elite since it has opened up to anyone and everyone due to improved standard of living and increase of leisure time. This new set of travelers’ is not necessarily looking for a hotel experience but for a comfortable place to stay overnight which has given a rise to the concept of Budget hotels. Also, expansion of business activity in Tier II & Tier III cities like Pune, Bhubhaneshwar, Jaipur, Mangalore etc has led to increased demand of budget hotels in these cities.
IHCL has already launched budget hotels in India, while Accor has announced plans to introduce its budget hotel brand, Formule1, in the country. Also, there has been increased diversification into niche segments like wildlife lodges, theme based resorts, spas and medi-cities in order to generate additional revenue. The serviced- apartment concept is gaining ground in India with increasing number of expatriates and travelers staying for long durations. Taj Wellington Mews, Homestead Serviced Apartments, Marriott Executive Apartments, Star City, Grand Hyatt Residences and Seasons can be quoted as few examples of serviced apartments.
Consistent change has made a positive impact on the productivity of this industry as it not helped in improving the functionality, but also enhanced its popularity in other nations. In the past one decade, the services offered and also the standards of facilities in hotel industry have undergone a complete makeover with the help of latest technology, environment-friendly services and pocket friendly pricing. The government policy of single window clearance for any hotel project under which The Ministry of Tourism approves hotels at project stage based on documentation has resulted into a positive achievement for this industry.
Also, the government has made many positive reforms under the category of tax holidays to absorb the capacity expansion in the hotel infrastructure. This benefit is currently limited to only 2, 3 and 4 star hotels and proposal has been made to extend it to 5 star hotels as well. Provision of tax rebate equal to 100% of the profit and gain for the first 5 consecutive years to an hotel located in the specified district having a World Heritage Site and has started functioning before 31st March, 2013 has encouraged many people to set up hotels which will lead to creation of more quality jobs as well.
Finance Bill 2009, which has proposed to abolish Fringe Benefit Tax with effect from 1st April 2009, has become major advantage to the hospitality industry. Inflow of Players With the liberalized reforms and prominent globalization, lot of foreign players brought diverse culture, new technologies, multi-cuisine, and ideas with them. Earlier, intercontinental players pierced the country by creating alliances with the national hotel chains.
However, recently, some international players have taken the inorganic route to strengthen their presence in the country. For instance, Carlson Hotels Worldwide increased its stake in RHW Hotel Management Services, owners of Radisson brand in India, while Choice Hotels International, Inc has acquired the remaining 60 per cent stake in Choice hospitality India Ltd. The major players in this industry are Indian Hotels, EIH, ITC hotels, Hotel Leela Ventures, Bharat Hotels and Asian Hotels, ITDC and Orient Hotels Ltd.
The booming industry has been successful in attracting many international players as well. A number of well established players include Hilton, Shangri-La, Radisson, Mariott, Meridian, Sheraton, Hyatt, Holiday Inn, InterContinental and Crown Plaza. New brands such as Amanda, Satinwoods, Banana Tree, Hampton Inns, Scandium by Hilt and Mandarin Oriental are planning to infiltrate in the Indian hospitality industry in joint ventures with domestic hotel majors. Figure 2: Key players in the Indian Market Company| Type of properties| Brands|
Indian Hotels| Luxury, mid-segment and budget| Taj, Gateway, Vivanta and Ginger| ITC Welcomgroup| Luxury, budget and heritage hotels| ITC Hotel—Luxury Collection, Welcom Hotel—Sheraton, Fortune and Welcom Heritage| EIH| Business hotels, leisure hotels and cruises| Oberoi and Trident| Carlson| Luxury, business hotels, economy and cruises|
Radisson Hotels and Resorts, Park Plaza, Country Inns & Suites, Park Inn| InterContinental| Luxury, mid-segment and business hotels| InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, Hotel| Source: Indian Brand Equity Foundation The global players are learning new tricks to sustain in the Indian economy and trying to grow aggressively to combat heavy demands.
Accor opened its first hotel in Gurgaon, at perhaps the worst possible time: August 2008. The following month Lehman Brothers collapsed in the US, triggering the global downturn. Another two months and the 26/11 terror attacks occurred, after which many countries issued travel advisories against visiting India. But the chain has had no second thoughts; on the contrary today it runs 14 hotels in India, including one bearing its ultra-luxury Pullman brand in Gurgaon.
It intends to increase the number of rooms it is managing from 2,519 at present to 13,952 by 2015. “The first opportunity may not always be the best opportunity,” says Jean-Michel Casse, Accor’s Senior Vice President and India chief. The global chains continue to be optimistic, insisting that India is the world’s second-fastest growing hospitality market after China. Major Challenges Although the industry is growing at respectable rate but still has a lot of opportunities in front of it India’s potential for hotel growth is unmistakable.
One of the key difficulties is the demand supply gap. Although hotel room supply in the country grew by nearly 15 percent in 2010/2011, demand growth still outpaced supply. Nationwide, occupancy grew by 1. 7 percent over the year prior. The growth in occupancy in the face of double-digit supply growth shows the strength of the hospitality industry in India. The industry is still recovering in terms of occupancy blow suffered in 2008 due to meltdown in America and then due to the terrorist attack in Taj and Oberoi, Mumbai before which it was hovering around 71%.
This is an industry where the investment required to create one job is only INR 11,200 while that in manufacturing is around INR 79,000 and with around 38 million population unemployed this industry holds a great responsibility for the country. Figure 3: Occupancy rate expressed as percentage in each financial year ending on March 31. Another major challenge is that increased talent attrition rates. The rapid expansion and global opportunities creates greener pastures for the more experienced ones in the sector and triggers the high attrition rates.
The huge expansion in an around middle east and Europe has created a demand for skilled personnel result of which the attrition rate in the hospitality industry has been doubled to nearly 50% by the end of 2010, up from the earlier 25%. Way Forward Indian hospitality industry has shown a grand evolution in the course of time and has led to being an integral part of the overall service sector economic activity. Owing to the massive development FHRAI has been demanding infrastructure status for the industry.
Hoteliers feel infrastructure status will give a boost to companies to re-invest profits into the hotel sector, which may be a solution to the demand supply gap. This in return will also be a major help in lowering room tariffs, making India a more affordable tourist destination. Also, with the rebounding of global economy and purchasing power back with people, the hotel industry said there is a huge requirement for quality rooms in India. For the time being, as the demand fails to meet the supply five star hotels in India will have to work hard to live up to the “service with a smile” belief.
Bibliography * Anand J. (2012), Room for Optimism, Business Today, Business Today * Capital Subsidy report, Tourism Finance Co-operation of India Limited, (2007) * Hospitality Insights from the Indian CEO’s desk, Confederation of Indian Industry (CII), (2012) * Journal of Indian Brand Equity Foundation(IBEF), (2012) * Volume 1, No. 1, Journal of Services, (2011) ——————————————– [ 2 ]. Department of Economic Affairs, Govt. of India, Feb 2012 [ 3 ].
The Federation of Hotels and Restaurants Association of India(FHRAI), June 2012 [ 4 ]. World Bank, 2004 [ 5 ]. Travel and Tourism Competitiveness report, 2011 [ 6 ]. Department of Industrial Policy and Promotion July 2012 FDI data [ 7 ]. The Federation of Hotel and Restaurant Association of India (FHRAI), June 2012 [ 8 ]. Project approval is given to a 1, 2, 3, 4, 5 Star Hotels and Heritage Basic Category. [ 9 ]. The Economic Time, January 24, 2010 [ 10 ]. HVS, 2011 Hotels in India Trends & Opportunities