Overview

The tourism industry in India contributes around 6% (USD 67 billion) of India’s GDP and is expected to rise to USD 190 billion by next 10 years. It is the third largest foreign exchange earner. India’s strong economic performance, strengthening of ties with the developing world and opening up of the sector to private and foreign players are some key reasons for the rapid growth of the tourism industry.

The hotel industry comprises a major part of the hospitality industry and can be subdivided into the following categories.

Premium and Luxury Segments

This segment consists of mainly 5 star hotels and caters to business and upmarket foreign leisure travellers. As the name suggests, they provide a high quality and range of services.

Mid-market segment             

This segment comprises 3 and 4 star hotels, which cater to the average foreign and domestic leisure traveller and middle level business travellers. It provides a good portion of the same services provided by premium segment at a lower cost, one of the reasons for which is the lower tax component compared to the premium segment.

Budget Segment

This comprises 1 and 2 star hotels. As the name suggests, this segment does not offer many high-end facilities but provides cheaper accommodation to the highly price conscious domestic and foreign travellers.

Heritage Hotels

Certain architecturally distinctive properties such as palaces and forts, built prior to 1950, have been converted into hotels and are classified as heritage hotels.

The Players 

In India, the hotels are owned by big hotel chains like Taj group, Oberoi group, ITC, relatively smaller hotel chains working with international players like Leela venture (with Kempinski), Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn and Hilton and now with Intercontinental), public sector chains like Indian Tourism Development Corporation (ITDC), Hotel Corporation of India (HCI), International hotel chains like Marriott, Starwood, Berggruen Hotels, Emaar MGF and local hotel companies.

Policies

To promote tourism in India, the Indian Government formulated a national tourism policy in 2002. The policy took various steps including the rationalization of tax rates in the hospitality sector, tourist friendly visa regime and immigration services, procedural changes for making land available for hotel, and allowing setting up of guest houses. Some of the other initiatives taken by the government to promote tourism are

Open-Sky Policy

The government has opened the aviation sector to the private players, granted permission to the domestic airlines to commence international flights which has resulted in increase in the number of domestic as well as international travellers in India.

Foreign Trade Policy

The policy announced in 2006 offered various incentives to the hospitality industry like i) Hotels and Restaurants are allowed to import duty free equipment and other items including liquor, against their foreign exchange earnings under the Served from India Scheme.  Service exports in Indian Rupees qualify for benefits under the Served from India Scheme. Benefits of the Scheme earned by one service provider of a Group company can now be utilised by other service providers of the same Group Company including managed hotels.

FDI in Hotel and Tourism Sector

100% FDI is allowed under the automatic route in this sector. The term hotel includes restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to the tourists. For foreign technology agreement, automatic approval is granted if up to 3% of the capital cost of the project is proposed to be paid for technical and consultancy service, up to 3% of the net turnover is payable for franchising and marketing/ publicity support fee.

Other Government Initiatives

The government has also taken several other initiatives like “Incredible India” (to promote India as a tourist destination through various marketing initiative), “Atithi Devo Bhava” (to create awareness among Indian people who come in contact with the tourists), various infrastructure projects like National Highway Projects and Golden Quadrilateral Project.