India Ratings & Research (Ind-Ra) expects the Union Budget 2014-15 to have a positive impact on the domestic hospitality sector and promote the government's 5Ts (talent, tourism, trade, tradition and technology) idea.
The proposal to create five tourist circuits (budgetary allocation: Rs 5 billion) and the launch of National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (Rs 1 billion) and National Heritage City Development and Augmentation Yojana (Rs 2 billion), among other initiatives, will boost the number of tourists, particularly domestic travellers.
The e-visa facility to be introduced at nine airports will make India a more attractive location and thus help increase foreign tourist inflow into the country which has been on a decline. The number of incremental foreign tourist arrivals (FTA) in India was below 0.3 million in 2013 and 2012. According to the Ministry of Tourism, FTAs grew at a low CAGR of 5.3% over 2008-2013.
The government also announced some measures to rationalise the indirect tax structure in the hospitality sector. Within this, services provided by Indian tour operators to foreign tourists for a foreign tour have been excluded out of the service tax ambit and CENVAT credit has been allowed for services of rent-a-cab and tour operators. The latter will provide some relief to hotels and ancillary services which have been burdened by the cascading impact of the indirect tax and improve their price competitiveness.
However, there was no announcement on the extension of infrastructure sector status to hotel projects costing less than Ra 2 billion. This would have provided an impetus to investment in the budget hotel segment where there is shortage of branded properties. Overall, the sector saw stalling of projects worth around Rs 143 billion over FY12-FY14 (80% of new project announcement) due to the economic downturn. Reducing minimum project cost requirement would have allowed larger number of hotel projects to avail the benefits enjoyed by the infrastructure sector through which they would have been able to access low-cost and longer-tenure financing. In addition, these projects would have been able to achieve a higher debt to equity ratio.
Ind-Ra believes the government’s intent to improve the overall macro environment along with its higher focus on the tourism sector is a positive and will enable an early revival in the sector.
