A $3.2 billion FDI windfall for hospitality
After the windfall in FDI in the hospitality industry, hotel experts give their opinion on its impact on the overall industry. But the fact is that the sudden increase is only because of one single large investment and not a change in investment climate,
MEGHA PAUL The
interest of hotel companies seeking to invest in India has not appeared to wane. Joint ventures are being announced, expansion plans are getting drawn up, both private equity and pension funds are seeking to deploy capital, and newer groups are looking to get a foothold in the market.
This is also indicated by the Foreign Direct Investment ( FDI) in the nation’s hospitality industry that has surged in the last financial year, amidst an improvement in investment climate. According to the data of the Department of Industrial Policy and Promotion (DIPP), the sector has attracted FDI worth US$ 3.21 billion during April, 2012-February, 2013. The FDI inflow in the sector in the last fiscal is significantly higher as compared to the flow of US$ 3.37 billion,
Incentives should be extended to all categories of hotels, so that their expansion plans can pick up the required momentum
which the country received during the last 12 years ending March, 2012. The foreign inflows in the hotel and tourism sector did not figure in the DIPP's list of the top10 recipients of FDI prior to September, 2012.
Much-needed govt boost
Talking about the recent development, Nakul Anand, President, Hotel Association of India says, “It is definitely good news for the hospitality and tourism industry. However, a lot needs to be done even now. Besides taxation and human- resource related issues, the government needs to take more steps to boost investment in this sector. There is a need to look at land-related problems for the hospitality sector. The recent DIAL hotels’ issue also needs to be solved as quickly as possible.”
According to Kamlesh Barot, Immediate Past President, FHRAI, unfriendly tourist taxes and policies will only detract FDI in the sector. “The previous few budgets by the Centre have not only increased taxes on accommodation, but also on Food & Beverage. Only a few states like Odisha have actually made tourism-friendly initiatives at the government level. The rest of the states feel that by making tax percentages higher, they would gather more revenue for their exchequer. India is a great tourism market, and that is propelling investor interest. International investors typically demand greater research of the market and greater transparency, which the country needs to build into its system. We rank 132 out of 165 in the business- friendly index across the globe,” he informs.
Unknowingly, many tourist-unfriendly practices like the FSI and operatingtime regulations under the pretext of security in prime tourist spots like Mumbai, drive investments away from the entire state. “If the government focusses on the industry, we can leave the Information Technology industry far backward. But the government needs to prioritise hospitality, as Karnataka flourished bringing IT to the fore. If we remove the transaction of last year, the FDI inflows would drop to about 300-400 million dollars, which is broadly in line with the trend in previous years,” he adds.
Filling the gap
Responding to the FDI increase, Barot remarks, “The challenge for FDI investors is that most international hotel operating companies would prefer to operate and not necessarily invest. Therefore, they also observe the private equity route or need a third-party to finance and own the hotel. To find reliable and committed hotel- owners is a challenge
One of the major reasons for the increase in FDI is the fact that the development risk is now reduced
for them. And to date, international foreign investment in India in all forms of real estate, in hotels or asset building is minimal.” In other developed markets-a lot of markets in the West and some markets in Asia-there is significant foreign investment already, whether in office buildings or hotels. In India, foreign investment shows the sector has recorded unprecedented FDI equity inflow. This is impressive, considering the cumulative inflows over the 12-year period from April 2000 to March 2012 were just $3.37 billion. However, the fact is that this
jump is almost entirely on account of a very large single transaction last year, he adds.
Less development risk
Akshay Kulkarni, Regional Director-Hospitality, South & Southeast Asia, Cushman & Wakefield feels closer scrutiny of the investments that have come in, reveal that the most of this investment is driven by either structured firms who have bought existing portfolios or through HNIs who may have bought one or two large assets with funds that have come in through international routes. “One of the major reasons for the increase in the FDI is the fact that the development risk is now reduced, as these assets are nearing completion or have been completed,” he articulates.
Shagun Sethi, Director, Sales and Marketing, Fairmont Jaipur feels tax holidays would certainly encourage FDI and will definitely help in new hotel develop-