Hospitality sector needs policy reforms to grow

Hospitality sector still faces a number of issues and needs more robust confidence-building measures. The policies and initiatives to promote the sector often falter at the implementation stage.

By Sonica Malhotra  
Friday, February 19, 2016

Sonica Malhotra, Director, MBD Group
The Union Budget has over the years focused on different sectors and different development models to push overall economic growth in the country. More recent budgets seem to recognise and focus on the hospitality sector as a major driver for growth. It is true that the hospitality sector (including travel and tourism) is a significant contributor to the economy. In 2015, travel and tourism is projected to have contributed Rs 8.22 trillion (7 per cent of the GDP) and 9 per cent of total employment (37.4 million jobs). A series of positive actions like expanding the Visa on Arrival (VoA) scheme to 150 countries, focus on developing heritage sites, push towards Clean India and focus on women safety are welcome moves.

However, the hospitality sector still faces a number of issues and needs more robust confidence-building measures. The policies and initiatives to promote the sector often falter at the implementation stage. Multiple agencies involved in granting clearances make securing the requisite clearances for a project a long and cumbersome process. The Budget should make provisions for implementation of single-window clearance for all infrastructure projects. This single act would help reduce the time taken for obtaining the required clearance and remove ambiguities on the status of infrastructure projects vis-à-vis clearance requirements and significantly improve on time needed for construction and delivery of projects.

Today, the cost of land for hospitality projects is very high and acquiring land is fraught with a high chance of litigation. As such, securing funding for projects becomes a herculean task and when available, funding comes at a high rate of interest. The government should also take steps to moderate real estate prices and thus help in creating the necessary infrastructure for the hospitality sector to achieve high growth. The internal return rate for projects is either negligible or negative. Steps must be taken to enable projects to break even and generate profit at the earliest.

The GST bill is yet to see the light of day. The government must find ways to get this bill enacted at the earliest. Multiple indirect taxes, double taxation and differential taxation from state to state have brought confusion to the market. A single unified taxation regime and simplified tax structure will give a boost to the ease of doing business. The positive effects of this will not be limited to a particular sector but will be felt across the board.

Availability of skilled manpower is another challenge faced by almost all sectors in the country today. And the quality of available manpower leaves much to de desired. The government must take steps to address this, adopting the PPP (public-private partnership) model where we can impart training to the manpower and improve the quality of their skill set is the way forward.

The hospitality sector should be conferred industry status with tax sops and easier finance options. While the sector's contribution to the overall economy at 6.7 per cent is significant, it is still below the global average of 9.8 per cent. There exists huge scope and potential for growth in the hospitality sector, given the diversity of our nation with thousands of tourist attractions. India has set an ambitious target of receiving 1 per cent of global travellers in the next couple of years from the current 0.64 per cent and the government must act soon to achieve this.

With more people catching the travel bug, the hospitality sector is poised for exponential growth in the coming years. The sector must gear up for an increasing number of visitors and changing profile of travellers. The sector will need the government's support in this growth story by substantially adding to the current available infrastructure across Indian cities.

The author is Director, MBD Group

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