Relaxed FDI norms for hotel sector may not spur foreign capital inflow

Kailash Rajwadkar

Mumbai, May 16: THE hotels sector is unlikely see any large inflow of funds, despite the government’s recent announcement to allow 100 per cent foreign direct investment (FDI) through the automatic route, according to industry experts.

The hotel industry, which did not find even a ‘mention’ in the Union Budget, is saddled with a tax structure that is detrimental for any investment of any nature to come in, leave alone FDI, industry sources said.

Commenting on the issue, Kamat Hotels (India) director Param Kannampilly said that unless the government rationalies tax rates and simplifies the procedures for taking approvals, FDI will continue to be an unviable and uninteresting proposition for an international investor, who has the options to invest in other countries and destinations.

In India, taxes levied on room rates and food consumed are in excess of 20 per cent by way of sales tax, luxury tax and entertainment tax as compared to the 5-6 per cent in south east Asia, sources said.

Welcoming the government’s decision, global hotel valuation and consultancy firm, HVS International managing director Manav Thadani said: “Most international hotel chains will prefer to have an Indian partner who will assist them in securing the various local permits (estimated to be 56 in number) to operate a hotel in India. If the government is really serious about attracting FDI’s in this sector they need to have a single clearance window for all permits.”

Jones Lang LaSalle Hotels’ associate Yeshwant Nadkarni said the impact of allowing 100 per cent FDI would be significant only with the improvement of the legal and regulatory aspects related to litigations and foreclosure norms while acquiring property and various licences.

Nonetheless, the 100 per cent FDI does allow some of the foreign hotel chains to reconsider their development strategy via-a-vis ITDC or other potential acquisitions, Mr Thadani added.

Le Meridien Hotels & Resorts, senior vice-president (sales & marketing), Middle East & West Asia, Russel Sharpe told The Financial Express: “We are reviewing the government’s initiative in the light of our expansion programme for India. We welcome this policy change and feel it opens up new opportunities for investment by ‘Le Meridien’ in India.”

Previously, 51 per cent FDI was allowed via automatic approval, while with FIPB approval this could further be hiked to 74 per cent.

Sources said that despite non-resident Indians (NRIs) being allowed to undertake 100 per cent investments, the same did not yield any inflow except for a single proposal.