THE FEDERATION OF HOTEL & RESTAURANT ASSOCIATIONS OF INDIA (FHRAI)
Federation of Hotel & Restaurant Associations of India (FHRAI) in their pre-budget memorandum submitted to the Union government has demanded inclusion of hotel accommodation and air-conditioned restaurants in the negative list of Service Tax till Goods & Services Tax (GST) comes into force. Supporting the early introduction of GST, the FHRAI memorandum asked capping of composite tax burden on tourism sector under GST at eight percent. A delegation of FHRAI, led by the President, S M Shervani participated in a high-level pre-budget meeting, chaired by Rajiv Takru, Secretary (Revenue), Government of India.
Among the key demands, FHRAI has urged lowering of the threshold figure of Rs 200 cr set for eligibility under Infrastructure Lending List for hotel projects to a reasonable Rs 50 cr so that hotel projects catering to diverse market segments can leverage benefits out of it. Instead of being applicable only with prospective effect, FHRAI demands this benefit should also be available to operational and under-construction hotels and they may be allowed to switch over their existing loans to the terms applicable for infrastructure projects.
The memorandum among other things also urges the government to permit Selected Term Lending Financial Institutions to float industry specific tax free bonds, so that these institutions can mobilise funds and deploy that fund to help asset creation in the tourism industry. FHRAI also repeats the long pending demand of rationalisation of taxes so as to position India as a globally competitive destination. Rationalisation of our industry's multiple tax structure is needed, so as to position India as a globally competitive tourist destination.
Outlining FHRAI's key proposals, Shervani said, “The past two years have been a particularly challenging phase for the industry, due to the impact of continued global economic uncertainties and a sharp domestic downturn. However, despite these adverse headwinds, the long-term potential of India's tourism sector and its strategic role in supporting our country's quest for inclusive growth remains undiminished. In this scenario, FHRAI's recommendations for the forthcoming Union Budget have focused on policy measures which can allow our industry to deftly navigate the myriad near-term challenges which we confront and also build a strong foundation for the sector's rapid and sustainable future growth.”
FHRAI Submits its recommendations for the union budget 2014-15........... Click here
Last year was a mixed bag for the tourism industry in India. What are your expectations for 2014, especially with an uncertain economy and elections this year?
2013 was certainly a difficult year, with the global slowdown and sharp deceleration in the Indian economy adversely impacting the hospitality industry’s demand scenario. Factors such as high inflation, especially a rapid increase in food and utility costs, rising interest rates and extreme currency volatility, have compressed margins and are squeezing profitability. The scarcity and exorbitant price of land, particularly in metro cities and inordinate delays in securing government approvals have considerably stretched project outlays and are further undermining investor sentiment in the sector.
Towards the end of the year, with the onset of the peak season in October, we have witnessed a visible improvement in average hotel occupancy across several key cities. Hopefully, these much-awaited green shoots would materialise into a steady pan-India recovery in the sector in 2014. With the global economic recovery gaining momentum and a gradual turnaround in domestic business sentiment towards the second half of the year, we expect hotel occupancy to pick up. However, given the strong supply pipeline of new hotel rooms, average room rates and RevPAR will rebound only with a lag.
What do you think hotels will be doing or rather should be doing to attract more guests and travellers?
The growth of Foreign Tourist Arrivals (FTAs) in India was only a modest 4.1% in 2013 and 4.3% in 2012, whereas domestic tourism has been robustly growing at 19-20%. This surge in domestic tourism has the potential to insulate the sector to a large extent, fromthe vagaries of the global market. We are already seeing that the ‘seasonality’ effect in popular leisure destinations such as Goa, Jaipur, Agra, Udaipur and Kerala, is gradually undergoing a change with difference in the demand during peak and lean periods being bridged owing to a reduced reliance on international tourist arrivals. With the US dollar appreciating and holidays abroad becoming increasingly expensive, we anticipate domestic travel toget another fillip. In view of this trend, hotels must actively reorient their value proposition to better cater to the distinct profile of the domestic traveller.
To compensate for the subdued demand, hotels are also seeking to leverage alternative revenue sources such as F&B, MICE etc. FHRAI’s research shows that the contribution of non-room sources to the gross revenue of hotels grew to 47.8% in 2012-13. A burgeoning middle-class with an increasing propensity to spend will continue to drive demand in the F&B and banqueting segment and hotels will seek to augment their internal capabilities and infrastructure to tap these lucrative segments.
How will FHRAI be supporting hoteliers in 2014? Are there any aspects of the hospitality industry in particular that will be FHRAI’s focus in 2014?
One of the pivotal areas of FHRAI’s focus in 2014 will be to address the funding constraints which hotels encounter, especially those in the budget and mid-scale category. Hotels are capital-intensive, long gestation projects and the hospitality industry is inherently cyclical. As such, to be financially viable, they should have access to diverse sources of low-cost long-term finance. In most major countries, hotels are able to avail term loans carrying 5-8% interest rate and repayment period of 20-25 years. However, in India, hotels are currently borrowing at 14-17% for loans with a tenure of just 8-10 years, out of which 3-4 years is typically the time taken for project execution and commissioning. It is evident that our lending parameters are not consistent with the intrinsic nature and requirements of the hotel industry. We must also bear in mind that in view of the ambitious targets envisioned by the Ministry of Tourism for the 12th Plan Period (2012-17), the country is posed to face a significant shortfall of 1,20,000 rooms in the affordable tourist accommodation segment. To bridge this gap, the industry will be required to commit additional capital investment of rupees 50,000 crore in the next five years. To ease the flow of institutional credit to the hotel industry, FHRAI will be pursuing three specific proposals with the government:
1. Reduce the minimum project cost stipulated for inclusion of hotels in the RBI’s Infrastructure Lending List from the present rupees 200 crore to a more reasonable threshold of rupees 50 crore.
2. Bank loans up to rupees 10 crore extended to SMEs in the hospitality industry should be permitted to be classified as “priority sector lending” under RBI norms.
3. Financial institutions such as TFCI, SIDBI, HUDCO and IIFCL should be allowed to issue a special category of tax-free ‘Hospitality Infrastructure Bonds’. The low-cost funds garnered from such bonds will support asset-creation in the tourism sector and help to reduce our industry’s reliance on banks for funding.
How does FHRAI plan on promoting responsible & sustainable tourism?
FHRAI has always articulated that sustainability is a business imperative for our industry and not just a CSR activity. We have encouraged our members to take a holistic approach to sustainability and stakeholder engagement, placing it at the heart of their business strategy. It is gratifying to observe that all industry segments, from high-end luxury resorts to business hotels in metros and standalone properties in tier III cities, are increasingly embracing this view. This is manifested in the commitment to reduce their carbon footprint by investing in efficient technologies forwaste management, water and energy conservation, adoption of green designs and architecture for new projects etc. At both the national and regional level, the hotel industry is also proactively partnering with the government and civil society in major initiatives aimed at preserving natural biodiversity and fragile ecosystems as well as safeguarding the interests of local and indigenous communities. FHRAI’s successful convention in Kochi last year was centred on the theme of sustainable and responsible tourism and served as a vibrant forum for a rich discourse on this vital issue.
FHRAI has worked closely with the Ministry of Tourism to give develop a ‘Sustainable Tourism Criteria’ which strives to balance the goals of economic, social and environmental value-creation by our tourism sector. We believe that facilitating voluntary compliance with global best practices through greater awareness and policy incentives is more effective in promoting sustainability in the industry than imposing rigid guidelines and punitive regulations.
Last year saw a disproportionate growth in supply of hotel rooms compared to the growth in demand, resulting in panic sales. Do you see a similar trend for 2014 as well?
During 2013, the industry is estimated to have added more than 9,000 rooms to its branded room inventory (YoY growth of 10.9%). In a weak macroeconomic environment, this significant fresh supply outpaced the growth in demand, putting hotel occupancies and room rates under considerable pressure. Going forward, the industry’s active development pipeline (i.e. hotels which are in the post-planning and construction phase) is estimated to be about 54,000 rooms, which will enter the market in the course of the next 4-5 years. Therefore, while we are optimistic about a revival in demand this year, the impact of the inventory overhang on the hotel industry’s operating metrics is likely to persist for at least another 12-18 months. This is particularly the case in cities such as Delhi-NCR, Chennai and Ahmedabad, which have seen the maximum addition in terms of fresh supply.
Are you expecting any support or favourable policies from the government this year that could prove buoyant to the hospitality industry?
The government’s ambitious 12th Five-Year Plan (2012-17) has identified tourism as a high priority sector, which can drive inclusive and pro-poor growth. We expect the government to urgently focus on alleviating certain systemic impediments, so that this vision of unlocking the tourism sector’s potential to serve as an ‘economic multiplier’ can be accomplished. In particular, we are hoping for a consensus between the Union Government and the Empowered Committee of State Finance Ministers, which paves the way for the nation-wide implementation of a uniform Goods & Services Tax (GST) within 2014. Similarly, we would like the government to expeditiously move towards streamlining our tourist visa norms, by favourably considering FHRAI’s demand for adopting an electronic visa regime for foreign tourists. We are also hoping for policy support from the Central and State Governments for the industry’s efforts to diversify our existing tourism product portfolio by tapping profitable niche segments such as MICE and beach tourism.
Do you see the hospitality industry gaining greater traction in Tier III and tier II cities this year?
FHRAI is extremely optimistic that led by improving connectivity and upgradation of civic infrastructure, tier II and tier III cities can be key drivers of our future growth and will be major beneficiaries of the current buoyancy in domestic tourism. This optimism is also reflected in the industry’s expansion strategy, wherein it proposes to add nearly 23,000 rooms by 2017-18, in cities other than the traditional top 15 markets. Not only domestic players, but international hospitality chains are also confident of this potential and are increasingly penetrating deeper into tier II and tier III cities by introducing well-known budget/economy brands from their global bouquet. Smaller towns and cities also stand to gain from the Government’s emphasis on promoting integrated tourist circuits/ clusters under the 12th Plan.
With the huge impact of social media, how do you see it influencing marketing and reputation management for the hospitality industry?
We believe that social media is both a challenge as well as an opportunity for the industry. On one hand, it can be strategic business tool that facilitates a deeper and more personalised engagement with customers and act as a dynamic platform for receiving constructive feedback, grievance redressal and also promote brand visibility and differentiation in a cluttered marketspace. However, we are concerned that there have been some instances in the recent past where social media has been misused by vested/biased interests to cause grave reputational harm and consequent financial losses to hospitality establishments, with the concerned establishments having virtually no recourse to undo the damage. FHRAI plans toinitiate an active dialogue with popular social media sites to ensure that even while preserving free speech and expression, reasonable checks and balances are instituted to minimise the prospect of any blatant misuse.
"FHRAI welcomes the decision to extend the last date for obtaining License/ Registration by existing Food Business Operators by a period of six months. We have been vigorously engaging with the Government at the highest level, on various technical and regulatory aspects of the new Food Safety Law and had demanded an extension of this deadline as it did not take into account the ground realities and practical constraints faced by the industry.
FHRAI supports the progressive intent and basic tenets of the Food Safety & Standards Act, but we have strong reservations on certain procedural issues and implementation mechanisms envisaged in the new law and its accompanying regulations. We also firmly believe that a sweeping reform of this nature can only be viably introduced by adopting a calibrated and consultative approach. Instead of arbitrary deadlines, the current focus must now shift to building greater awareness, particularly in the unorganised sector and allowing sufficient time to both the regulator (FSSAI) and our industry, to put in place robust internal systems, transparent processes and a pragmatic compliance framework."
“On behalf of FHRAI, I applaud the historic steps announced by the Central
Government to modernise India's tourist visa regime. We are particularly grateful that the Government has accepted our proposal to adopt a system of Electronic TravelAuthorization, which will offer multiple advantages of speed, efficiency, convenience and flexibility, while minimizing security related risks. With strong support from the Ministry of Tourism, FHRAI had been assiduously pursuing this issue with the Union Ministry of Home Affairs and we had emphatically highlighted that a bold and timely
decision will be imperative to enable us to accomplish the vision of doubling our Foreign Tourist Arrivals (FTAs) to 12 million within the next five years.
A seamless and differentiated visa mechanism to encourage and facilitate foreign tourist travel is imperative to position India as an attractive and welcoming destination and enhance the global competitiveness of our tourism sector. At a time when we are witnessing the adverse impact of a global and domestic economic slowdown, these measures to simplify visa norms will give a much needed impetus towards leveraging tourism's intrinsic potential to spur job creation and boost our country's foreign exchange earnings.
We look forward to extending our full support to the Home Ministry and other Government agencies to ensure that the requisite infrastructure, in terms of technology and personnel is expeditiously put in place, so that this initiative can be operationalised well in time before the onset of peak tourist season this year.”
FHRAI PRESENTS THE INDIAN HOTEL INDUSTRY SURVEY
January 20, New Delhi: The Federation of Hotel & Restaurant Associations of India (FHRAI) has released the latest edition of its widely acclaimed annual publication, the FHRAI Indian Hotel Industry Survey, published in cooperation with HVS Hospitality Services. The survey encapsulates the performance of hotels in all major Indian cities and across star categories and market positioning. In addition to in-depth data on financial and operating metrics such as occupancy, average room rates and revenue per available room, the report also includes a comparative analysis based on parameters such as guest facilities, manpower, technology adoption, choice of marketing media etc.
A presentation on the key highlights and trends emerging from this year's survey was made by Mr. Manav Thadani, Chairman-Asia Pacific, HVS, to a select audience comprising of top hoteliers, senior government officials and the media, at an event hosted by FHRAI at The Leela Palace, New Delhi today. Mr. Parvez Dewan, Secretary, Ministry of Tourism, Government of India graced the occasion as Chief Guest.
Addressing the media, Mr. S.M. Shervani, President-FHRAI said, “As the leading national voice of the Indian hospitality industry, FHRAI accords high priority to producing credible research and contemporary thought leadership which can shape policy and guide business strategy. Our annual Indian Hotel Industry Survey is an exemplary reflection of this very commitment and it is extremely gratifying that this publication serves as an indispensable reference and benchmarking resource for hospitality professionals, policymakers, investors, mediapersons and other stakeholders.”
Sharing his assessment on the hotel industry's performance in the past year, Mr. Shervani said: “Despite sincere efforts, both by the Government and the private sector, India’s global market share in tourism remains at a disappointing 0.68%, with the country being ranked 41st in the world in international tourist arrivals. The World Economic Forum’s influential Travel & Tourism Competitiveness Index, placed India at the 65th position among 140 nations in 2013. It is pertinent to note that on their three pillars of competitiveness, India was well assessed in terms of its human, natural and cultural resource endowments with a rank of 21, but scored an abysmally low position of 110 globally in its regulatory framework for travel and tourism and 67 on business environment & infrastructure. It is thus amply evident that India has been unable to convert its inherent comparative advantages into a sustainable competitive advantage for our hospitality and tourism sector.
2013 was certainly a challenging year for the industry on account of the global and domestic slowdown, which is also visible in the pressure witnessed on hotel occupancy and average room rates. In a tough macroeconomic environment marked by high inflation, rising interest rates, currency volatility and a tepid demand scenario, hotel companies have prioritised realignment of their cost structures, optimizing operational efficiencies and adopting flexible business models. At the same time, the industry is optimistic about the long-term potential of the Indian hospitality sector and we remain steadfastly focused on pursuing customer-centric innovation, delivering service excellence and tapping newer market segments.
A heartening trend for the sector in the last few years has been the robust double-digit growth in domestic tourism. However, to sustain this momentum, it will be imperative to steadily augment our hotel room inventory in the affordable tourist accommodation segment. In order to achieve the 12th Plan target of 1452 million Domestic Tourist Visits (DTVs) by 2017, the industry needs to add 1,20,000 rooms in the budget and mid-market category, entailing an estimated capital investment of rupees 50,000 crore. The Government must facilitate this massive investment by reducing the minimum project cost stipulated for inclusion of hotels in the RBI's Infrastructure Lending List from the present rupees 200 crore to a more reasonable threshold of rupees 50 crore. FHRAI has also proposed that bank loans up to rupees 10 crore extended to SMEs in the hospitality industry should be permitted to be classified as “priority sector lending” under RBI norms.
Achieving a meaningful growth in Foreign Tourist Arrivals (FTAs), requires that the Government must empower the industry to effectively compete with our peers in neighbouring destinations such as South-East Asia, by urgently rationalising our complex multiple tax structure, adopting a streamlined electronic visa regime for international tourists and reviving investor sentiment in the hotel sector through measures such as single-window project clearances and access to lower cost long-term funding.”
The Federation of Hotel & Restaurant Associations of India (FHRAI) is the apex body of the Indian Hospitality industry and represents nearly 4000 members, including Hotels, Restaurants and associates, spanning the length and breadth of our vast country. Founded in 1955, the association has diligently built on its rich legacy and is today privileged to serve as the leading voice of our industry and plays a seminal role in supporting the growth trajectory of India's hospitality and tourism sector. FHRAI provides a vibrant interface between the industry, government, regulatory bodies, academia, international organisations, civil society and the media.