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Ease of Doing Business Myth or Reality?

Tuesday, January 9, 2018, 15:28 Hrs  [IST]

A young hotelier summed up the hotel industry’s health in an unequivocal way. ‘What doesn’t kill… make one stronger’. The trials and tribulations that the industry has gone through in the last couple of years seemingly had a positive impact on the industry. At least, some of those disruptions made the industry stronger and equipped it weather even harsher storms in the future. Demonetisation, liquor ban on highways, Goods & Services Tax (GST), all tested the resilience of an industry that depends and thrives on people’s discretionary spending, one after another. But the industry seems to have withstood these harsh tests, if various industry reports that came out in the last few months are indicators. Nationwide occupancy, as per the latest HVS report, crossed the 65% mark for the first time since 2007/08, with hotels clocking an overall weighted occupancy of 65.6% in 2016/17, an increase of 3.5% over the previous fiscal. Growth in occupancy pushed the average room rates at least marginally at 2.4% in weighted average and RevPAR by 6.0%. While the unorganised industry has a different story to tell about the implications of the government actions in their business, which, unfortunately, doesn’t reflect in global consultancies reports. Hospitality Biz’ endeavour to understand the sentiment of the industry on the door step of a New Year, yielded somewhat uniform response – POSITIVE. The industry unanimously feels that the past is behind and the New Year will bring more stability and open up new opportunities for all round growth. However, they want the governments at all levels to deliver on their promise of ‘Ease of Doing Business’. So far, the ‘Ease’ is only on paper with ground realities indifferent. They also want consistency in policies to make the sector a lucrative investment sector of the economy. In short, the industry looks healthy on the face with some prolonged stresses to heal!

Trends are quite encouraging for Hotel industry
For the first time after 2006, hotel occupancies in India has reached 68% this year. And in the case of stabilised hotels, it was between 72 to 75%. This shows that the hotel industry in the country is in good health. Domestic demand is fuelling the growth. All the government policies are favouring the business. Of course, there are some issues with GST, which would hopefully be corrected in the forthcoming Budget.

The aviation demand is strong. The aggregated supply of new inventory is going to be less than one percent in India, while demand is expected to be in two digits. We are expecting this trend to push the room rates up in the coming year. My personal belief is that 2018 will see an accelerated growth for hotel industry.

Yes, there were disruptions like demonetisation, GST, liquor ban, etc., but the industry has been able to weather all those disruptions because of negligible supply growth. If there was large supply growth, the industry would have felt the pressure.

The MICE is the biggest growth driver today for the hotel industry, especially the large sporting events, be it IPL, ICL, or others. These sporting events are largely happening in the off- peak period, between April and September which is saving grace for the industry. The weddings business has emerged as a new business for hotels today. The domestic corporate and domestic leisure all are growing. Because of input credit the corporate gets, they are no more going abroad for events. Therefore, GST has not impacted corporate hotels. Leisure, of course, has had some impact because of the GST.

Multiple challenges made industry stronger
Every business goes through ups and downs. This is a pattern which exists everywhere. There is no industry in the world which does not witness this cycle. Fortunately, Indian hoteliers are used to overcome a lot of obstacles and this experience came in handy last year.

What was unique to last year was that there were two major decisions which impacted the entire industry, viz., demonetisation and GST. The former
had a marginal impact on the hoteliers, especially in bigger cities, because branded hotels do get their bookings online and payments are done digitally. Unorganised players were majorly hit as there is large component of cash involved in transactions. As far as GST is concerned, since there were a lot of changes in the rates till the last minutes, there were certain glitches, but it was sorted out as we were prepared for the same.

The liquor ban had an impact on the hotel and restaurant industry resulting in revenue shortfalls.

There are certain constructive measures that the government has adopted, however there is still a long way to go. It still takes very long to get all the licences in place. Also, the coordination between various government agencies is still a big concern. The Bureaucrats /Govt. think that hotel industry is a milking cow and keep on adding more and more taxes.

The scenario for the coming year seems to be positive. With the economic forecast being decent, I am optimistic about the overall business scenario which is essential for the hotel industry. There will be lot of hotels which will be opening in 2018. The growth will mainly be witnessed in tier-II and tier-III cities.

Industry emerged stronger from adversities
The last five quarters have been good for the hotel industry. Demand has grown while excess supply has been absorbed in an orderly manner. This has helped push average occupancy to almost 70% after many years, however, rate has yet to strengthen. Despite the fallout from demonetisation and liquor ban and impact of GST roll out, the hospitality sector has emerged bruised, but stronger.

On the other hand, the high rates levied on tourism sector under GST will impact India’s competitiveness vis-à-vis its neighboring countries. Corporate and MICE business segments, which contribute to the overall profitability of the hotel business will be impacted too.

Given the increasing demand for hotel rooms and long-term projections for additional inventory, the industry has a promising potential. Yet it presents some challenges such as lack of a single window clearance system, high interest rates, shorter loan payback period, unexpected delays in projects, scarcity of quality talent, etc. These challenges mean longer lead time for owners to realise returns on their investments. Further, a low RevPAR market like India, demands investing in the right brand after proper feasibility studies as overspending can burden the return on investment.

New hotels are coming up, but there is certainly a need to improve efficiency. Hotels are a cyclical business and I am confident the next several years will be positive for the industry. Strength of the economy, ease of travelling, continued improvement in infrastructure and demand growing faster than supply all bode well for hoteliers. I see light at the end of the tunnel and believe it is not an oncoming train.

Ease of Doing Business is a mixed bag so far
Overall, it’s been a good year so far. Recent industry reports indicate a 5% India-wide increase in occupancy accompanied with an ARR growth of 4% thereby yielding a RevPAR increase of approximately 9% for the Financial Year 2018 (YTD). This, in my view, is fairly robust growth given the fact we’ve had some significant changes to our tax regime and other hurdles such as the highway liquor ban as well as the hangover of demonetisation from the previous year.

GST did result in teething issues especially with respect to the different slabs that were proposed for the hospitality sector. While our group of hotels remained largely unaffected with the new tax structure, hotels in the upscale and luxury space have had challenges dealing with the 28% tax bracket. Other challenges of the GST regime included problems around IT and systems which required to be tweaked to meet the compliances of the new regime.

Building and operating hotels in India has several legal requirements. At InterGlobe Hotels, where our main focus is on development of new assets, ease-of-doing business tends to be a mixed bag. While the overall license requirements have improved over the years, one still requires approximately 100 licenses to open a new hotel in India today.

We are very excited and looking forward to a strong 2018. Our recent additions to our portfolio will significantly help us boost revenues for the company and with more hotels in the group now reaching the 2-3 year mark, operating margins are also likely to improve and stabilise.

Need to make hotels a lucrative investment sector
Overall, there is a surge in demand and limited supply inclusion has helped the cause. The other positive sign is the northward movement of average room rates. Said that, there should have been a much stronger improvement in the average room rates than we see today. With positive economic and political parameters, this is an area we will have to work towards in the coming year to make hotels a lucrative investment sector.

There have been a few blips in the journey, some with a short term impact and others from where recovery has been slow. A liquor ban across highways had an adverse impact on affected hotels across functions such as bars, restaurants and related room business. Reforms such as GST have a long term positive impact across board and in the short run the teething issues are just that. The fact that government has been open to dialogue and amendments if needed is great.

It was a pleasant relief to see our country’s ranking jumping over 30 notches in ease of doing business. This is a comprehensive effort that has come into being with the government taking up initiatives to make a reform in the regulatory systems to attract investments.

The year 2018 looks promising for Berggruen Hotels and industry at large. We will continue to foray in new markets and expand our footprint. We also foresee consolidations and mergers in the hospitality market. As mentioned earlier, the next couple of years should unleash the full potential of our industry at sustainable levels.

Ease of Doing Business is still a challenge
The overall health of the industry has improved a lot from 2015 onwards and the occupancies have grown. So, much that they are at a peak right now. To mention a few numbers, the taxes have gone down from 21.5% to 18% which has further gone down by 5% in F&B. The industry, however, is yet to see the improvement in the ARR’s as it is expected to show improvement in the coming year. This is because the demand has improved at a bigger pace than the supply.

The demonetisation had an impact on the industry but not to a larger scale as hotel industry is part of the organised sector. Some F&B and wedding businesses did take a hit but that is a forgotten story now. Liquor ban again had an impact on some of the hotels but after the correction in the judgement by the Apex court and some corrective measures by the respective state governments, the industry has overcome the issue.

GST, overall had a positive impact on the industry. Yes, there are some challenges in the implementation of the GST which the government should look into it and make sure they are more pragmatic and user friendly.

Ease of doing business is still a challenge. The talks by the government are not going down the systems. Some of the laws of the land are obsolete which needs to be looked into. If the government is pushing for digitisation then they should look at the cost also. Single window clearance is another concern here. There has to be an ease in taking permissions for property possessions and licences. A lack of which causes huge losses in interest to the investors. We are talking of global economy and about competing with global players but with the rules and laws and the side effects that we see it is very difficult.

Licensing needs to be pro-investment
Demand levels appear to be encouraging on the hotel occupancy front with India reporting occupancy of approximately 65%, which is highest since 2012. Market indices indicate a growth in both domestic business and leisure travel.

Despite demonetisation, liquor ban and GST implementation, the key demand drivers, i.e. business travel, leisure travel, MICE visitation, weddings & social travel, diplomatic travel, airline crew and transit demand remain largely unaffected and continue to drive business.

The general sentiment across industries supports the Government’s promise in ease of doing business. With growing business opportunities and creation of SEZs, domestic business travellers continue to be the major generators of room night demand in India. Going forward, domestic demand is also likely to grow at a healthy pace.

The approach to hotel investments and licensing needs to be more pro-investors and time bound in terms of approvals. Lemon Tree Hotels’ expansion strategy is to continue to develop new hotels across India including tier-I, II and III cities focusing on both business and leisure travellers.

Lemon Tree Hotels continue to remain upbeat as ever. We believe there is a positive sentiment in the hotel industry and it will touch the top of the cycle by October, next year. India is all set to rise as a tourist and business destination and so are we.

Increasing Private Equity exposure is a good sign
The year 2017 has been marginally better as compared to previous years particularly in terms of occupancies which have seen a northward trend. However, the rates continue to be under pressure. While, we have not seen much impact of demonisation, the ban on bars on highways did create a major setback for some time.

The recent relaxation in GST rates governing the hospitality sector has been a welcome news. However, some ambiguity remains when it comes to application of GST on food & beverage in hotels. Having said that, we believe the
hospitality sector has weathered the storm and is now beginning to once again look up.

We eagerly await the ‘coming true’ of Government’s promise of ease of doing business. While some states, including Karnataka, already have in place a single window clearance mechanism for approval of projects including hospitality, this body needs to be given more teeth to be more effective than what it presently is. To open a hotel anywhere in India, one needs anywhere up to 100 approvals and licenses. Despite the presence of single window clearance body, one needs to still reach out to all these departments individually.

The coming year should see few more properties opening up in the country though this may further add to the rate war. One should also see private equity players increasing their exposure to the hospitality sector, with the renewed interest they have recently been showing in this domain. This augurs well for the hotel industry that should also see an increase in number of acquisitions taking place.

It’s a year of multiple disruptions
The year has been a roller-coaster ride for the hospitality industry with the multiple disruptions and the associated uncertainties. Last year, the industry was practically crippled with the impact of demonetisation and this year may well go in covering up for the losses accrued in the year. It was closely followed by SC’s ban on liquor selling along the highways. During this period, many MICE and wedding events which are big ticket sales for hotels witnessed cancellations. The GST, although a great tax reform, came right after the industry had suffered a terrible dip in the businesses. Even the impact of GST with the transition of systems, and other issues like the unavailability of ITC for MICE among other factors compounded to the effect.

But we certainly appreciate that the GST Council acknowledged the industry’s concerns with the high taxation and reduced it for the restaurants.

We are presently operating properties in seven states in the country and although each of the states has agreed to ease of doing business, in reality we have not experienced any noticeable change. Hotels are still required to maintain physical permissions and licences and the process of renewals continues to remain manual. We are hoping that since the Government has in-principal accepted the ease of doing business as important, it may get implemented sometime in the near future.

The Government’s impetus on encouraging tourism and the Incredible India branding is an indicator of a prosperous hospitality and tourism environment. 2018 is expected to see an increase in travellers within the country which will be driven by the millennial.

Marked improvement in investment climate
The Indian tourism and hospitality industry has emerged as one of the key drivers of growth among the services sectors in India. India’s rising middle class and increasing disposable incomes has continued to support the growth of domestic and outbound tourism.

The demonetisation drive had a short term negative impact on the many sections of the hospitality industry in the country, but it proved to be beneficial for organised industry in due course. Liquor ban had very little effect on the industry and it seems to be alright now. GST implementation had definitely a major impact and the various industry association are still in touch with the ministry for further revisions and I am sure in days to come it will be much simplified.

Most of our projects are in eastern part of India. We have six hotels in Odisha and as far as Odisha Government is concerned they are really proactive and have successfully developed single window clearances for any investment. Things are very much simplified as compared to previous years by the Government from investments to the licencing. We are very much experiencing the same as we have projects in pipelines at West Bengal, Odisha and Chhattisgarh.

I am very much optimistic about the positive business environment in coming New Year 2018. With the rise in the number of global tourists and realising India’s potential, many companies are willing to invest in the tourism and hospitality sector. The government has realised the country’s potential in the tourism industry and is taking appropriate steps to make India a global tourism hub.

Need to address issues of taxation infrastructure
With the consistent surge in domestic tourism, 2017 started on a positive note for aviation, travel and hospitality industry. India became the third largest aviation market as domestic air traffic showed consistent growth. The hospitality industry however faced several roadblocks but has made an encouraging recovery in the last quarter. The industry’s dependence upon technology is growing to improve efficiency, accelerate profitability, and we expect Global Distribution Systems (GDS) to become more deeply embedded across these sectors.

2018 for aviation, travel and hospitality industry will be a promising one as domestic travel and MICE picks up resulting in business growth. With the upcoming Union Budget for 2018-19, we are looking forward to reforms supporting the industry. While the government is aggressively marketing brand India globally, it is imperative to focus internally and address issues around taxation, infrastructure and inconsistent regulations imposed by various states to achieve the potential of these industries. We also hope the Union Budget will empower each of the industries to take full advantage of varied opportunities ahead.

Encourage more investors into the sector
As we all are aware, the tourism and hospitality industry in India has significant potential and has come forward as one of the driving forces of growth in comparison to other services sectors in India. We are hopeful that Ministry of Tourism, Govt. of India will focus on the overall growth of tourism industry and provide sufficient solutions to help this industry by encouraging investors to invest in tourism sector.

Ease of Doing Business is a great initiative by the Governments to provide a hassle-free business environment to investors. In a recent ranking of Ease of Doing Business, declared by the Govt. of India, Bhubaneswar has been ranked as the third best city among 17 cities in the country. Odisha Government has taken a number of reforms/ technology by various departments in this regard. MSME entrepreneurs will also be able to get various incentives through Ease of Doing Business.

In terms of Business Environment and in terms of new investments in tourism sectors, the growth prospects in 2018 will definitely be brighter than 2017. On its part, Odisha Government is providing numerous incentives to attract investors into the tourism and hospitality sector in the State in the next three years, to develop tourism infrastructure as well as encourage more and more international airlines to look at Eastern India in general and Odisha in particular.

Constant changes in rules deter long term investors
I think the industry as a whole has been through very rough times, however, we have in most cases managed to survive difficulties just like this and sometimes bigger than this. Unfortunately, consistent shocks like this which keep coming in some form or the other with some changes in rules or the other creates a lot of negativity from getting in long term investors into this sector.

They say what doesn’t kill you only makes you stronger I guess that’s what can be said about hospitality in India.

It would be wrong to say that there haven’t been improvements in doing business. There have been numerous improvements. However, this sector despite being a very basic and grassroot-level sector which can be termed as basic infrastructure for any country to be able to do more business that is commerce as well as for the growth of leisure is sadly highly regulated.

While various NOCs, and licences related excise, municipal, etc. have been done away with, we hope to see the pace of ease of doing business continued in the coming years.

None can deny the continued huge opportunity that hospitality in India has to offer. I am confident that sometimes slow sometimes fast but the industry has kept growing despite numerous challenges and the coming year will not be any different.

I am particularly confident about the mid-market segment will continue to grow as the economy grows as well as with the introduction of GST the opportunity for chain restaurants continuous to grow since they can now operate more easily from centralised kitchens.

Need to harness technology
2017 has been a year of ups and downs in hospitality industry, however, for WelcomHeritage it has been a rewarding year. We have not only signed new properties under the aegis of the brand, but also registered a growth of 15% over the last year. Indian tourism industry, which has been growing year-on-year, has been one of the most prominent reasons for the growth of hotel industry and we are not an exception.Domestic Tourist Visits (DTVs) grew by 15.5% y-o-y. India’s travel and tourism industry has huge growth potential. The tourism industry is also looking forward to gain from the E-visa scheme which is expected to double the tourist inflow to India.

The hotel industry is ever evolving. The need of the hour is to keep abreast with the latest technological advancements which are happening today. For Heritage properties, located in offbeat destinations, this continues to remain a big challenge because of the non-availability of local talent as the younger generation of today is fast moving to the big metros where they see a lot of growth.

We are very happy with our growth and in 2018 we look forward to expand our footprint and business to another level. We are in conversation with more properties’ owners and very soon we will be making announcements of new properties on the board.

GST has smoothened business
The year has been an eventful year with major happenings that lends a positive impact on the ease of doing business. GST - Goods and Services Tax - had an interim impact for about a week or so when we faced small unnerving situation because of lot of clarification pertaining to change in taxation etc. But, overall, I think it’s a good move because we now have one level of taxation that delivers great long term to mid-term smoothening of doing business.

The year 2017 was promising for MBD Group and most part of the year was spent on re-designing Radisson Blu MBD to reposition it as an ultra-luxurious hotel in NCR. The repositioning of the Noida hotel is in sync with the Group’s vision to captivate the new gen luxury travellers with refined sophistication and to provide unprecedented level of luxury and hospitality.
We had a satisfactory 2017 and with our newly renovated hotel, we aim to successfully reposition ourselves as a super luxurious offering. Three years before the renovation started, we were No. 1 in RevPAR (Revenue per available room) in entire Delhi-NCR region and we hope to achieve this position by April starting.

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