Reform India’s Tourism Agenda – BW Hotelier

Tourism contributed 9 per cent to India’s GDP and 10 per cent to its employment pre-Covid. It has the potential to contribute 20 per cent of jobs and propel India to a $5 Trillion economy. 

It is as important an infrastructure item as are roads and bridges. Massive growth in the USA happened concomitant to the creation of national and state highways in the 70s and 80s supported by the development of hotels and motels. Similarly, China started firing its economic engine starting the 90s, building holistic infrastructure including hotels, roads, and runways. Therefore, it is no surprise that the number of hotel rooms just in Beijing and Shanghai today exceeds the total inventory of the branded hotel sector in India. Importantly, the sector also has a multiplier effect on earnings as each dollar ladders down multiple hoops from travel agents to airlines, hotels, transporters, suppliers of engineering items to produce, retailers, and the local economy adding value at each step. 

The pandemic will also lead traditional hotel asset owners to examine rental housing as an adjacent asset class. Twelve million migrant students and 30 million migrant working professionals need housing. Today’s millennial Uber generation prefers renting to buying. It will be worthwhile to consider devoting inventory to serviced residences, vacation homes, co-living, student housing, and senior living communities. Developers could consider PBSA (Purpose Built Student Accommodation) and BTS (Built to Suit) co-living products for stable returns. 

A positive domino of this expansion of the industry’s ambit and the fact that tourism generates more jobs than auto, technology, or financial services per dollar invested makes it a strategic choice to attract FDI, create jobs, and generate sustainable tax receipts. 

We should consider the following four anchor items for reforming India’s tourism agenda. 

1. Incorporate Tourism as a credit-earning subject in school curricula, this will: 

a. Enable national pride and consciousness of our heritage 

b. Accelerate grassroots adoption of Swachh Bharat and Atmanirbhar Bharat 

c. Create sustainable jobs for Tourism & Hygiene teachers and Local Culture & History Guides 

PM Modi’s Swachh Bharat initiative and his fore-sighted callout of Tourism as one of the five key pillars of Atmanirbhar Bharat needs to get into school curricula. 

Junior school students need to be taught hygiene and environmental protection. High school students need an appreciation tour of the values enshrined in our national temples, from Sabarmati to Sriharikota to the Statue of Unity. This will also boost domestic travel and create jobs for teachers and guides in tourism and hygiene. 

2. Create a Sectoral Sovereign Fund 

India needs a sectoral fund to protect and grow its tourism industry, with 50 million jobs and 250 million citizens dependent on the sector. The government should invite other sovereigns also to participate in the fund. It could be structured as a 30 per cent grant over the next four quarters, and a linked 70 per cent loan (Libor + 1-2 per cent) disbursed over the subsequent four quarters with a two-year moratorium and ten years payback with future warrants for the fund having rights to acquire equity in such companies. 

Pension and other institutional funds will find this instrument attractive with the base returns guaranteed by the Indian sovereign and the bonus of a potential sectoral upside. 

3. Migrate Tourism to the Concurrent List to give teeth its purpose and strong limbs for its execution. 

4. PM to lead a Standing Cabinet Committee on Tourism

The PM will do well to lead a Standing Cabinet Committee on Tourism (SCCT) focused on creating a robust framework for strategic execution of the Tourism economic agenda, speedy decision making, and removing roadblocks in execution. 

The SCCT should co-opt decision-makers from concerned ministries, history and culture experts, urban town planners, and industry representatives to create the India Tourism Task Force (ITTF). ITTF should be mandated to provide a holistic overview and enable the framework for accelerated public-private collaboration. The SCCT should immediately focus on three objectives: 

i. Grant Infrastructure Status 

The government took a bold decision in 2017, granting infrastructure status to warehousing and cold storage above an investment threshold of Rs. 25Cr and Rs. 15Cr respectively. This far-sighted move has seen India attract multi-billion dollar FDI in the sector over the last three years, not only creating new jobs and increased tax collections but also improved supply chain efficiency, reducing the cost to consumers. 

Similar status is required for Tourism and Rental Housing projects, including investment in hotels, transit facilities, vacation homes, serviced residences, student housing, senior living, migrant housing, capability building, and destination development. Currently, such status is given only to hotel projects over Rs. 200Cr (excluding land cost). This makes it unviable to develop great quality budget infrastructure, which is a crying need for the masses today. 

Infrastructure status would also enable debt at preferred rates over a 20-25 years repayment tenure. Currently, projects receive high interest-bearing debt with a 9-10 years repayment tenure. Considering the fact that construction, start, and stabilisation of a project itself could take 5-6 years, many developments risk becoming NPAs before they can stabilise earnings. 

A 20Cr threshold for infrastructure status would attract massive FDI and global institutional capital into India’s tourism and rental housing sector. 

ii. Rationalize Development Norms

The embedded cost of land in hotel projects in India is 40-60 per cent vs. 15-25 per cent in the USA and 10-20 per cent in China. The ITTF should create pragmatic zoning norms for hospitality and rental housing projects to promote the development of time-bound infrastructure, supplemented with the right development norms. 

Given the high embedded land cost, higher FARs for such projects would be economically viable and channelise investment in creating local job opportunities. 

Current development norms ask for parking spaces that are ten times higher than sought in the USA or even Singapore. Given the transit nature of today’s Uber customers, these spaces increase development costs by 15-20 per cent. Projects in India waste capital building basements and stuffing them with under-utilised mechanised car parking. Pragmatic zoning would also locate tourism and rental housing infrastructure in proximity to metro and public transport, discouraging private vehicles.

iii. Improve Ease of Doing Business 

A typical hotel project in India, depending on the state, needs anywhere from 80 to 110 Licenses and approvals to start. Singapore, as a comparative, needs only 26. Hotel companies in India staff a full-time department just to procure and maintain licenses. 

These licenses and approvals need to be obtained from central and federal bodies like the Tourism Ministry, PCB, AAI, ASI, NHAI, FSSAI, EPFO and ESIC, state authorities like DTCP, State PCB, Police, Fire, Labour, Excise and various local agencies like the municipality and inspectors for boiler, generator, STP, weights and measures, laundry, gram panchayat, etc. 

Navigating this maze can take more time than constructing a hotel. Many of these licenses are sequential and need an ‘in-person’ follow-through to expedite since the concerned bodies do not have any deadlines for approval. Post procurement, most of these licenses have to be maintained similarly, on an annual basis promoting a lack of transparency and increased cost. 

With its unwritten rules, this licensing ecosystem is an invisible barrier to developing the full potential of tourism in India. The ITTF would do well to create an online digitised platform to enable single-window submission, online tracking, and time-bound approvals making the regulatory process seamless. ITTF could also create an annual certification mechanism for renewals and migrate most to a three-year physical verification frequency. 

Implementing this reforms roadmap, guided by a Standing Cabinet Committee on Tourism (SCCT) lead by the Prime Minister, will enable and exhort the industry to lend its might to jobs creation, develop pride in our national heritage, and truly contribute to propelling India to a $5 Trillion economy.