Interim Budget should provide incentives for hospitality industry

Last Updated: 7 Aug 2024

The hospitality industry was among the industries most severely hit by Covid lockdowns. The industry expects more incentives from the Interim Budget. One of its key expectations is that GST rates on hotel rooms should be lowered. Currently, GST rate on hotel rooms is 12% for rooms priced below Rs 7,500. For rooms that are priced above Rs 7,500 per night, the GST rate is 18%. In many other countries in Asia and nearby region, GST rates on hotel rooms is much lower, at around 5% -8%.

Getting Infrastructure status

Another long pending expectation is granting infrastructure status to the entire hotel industry. Currently, infrastructure status is granted only to hotels that are built with capital investment of Rs 200 crore or more. Infrastructure status is also granted to hotels that are built in smaller cities that have a population of less than 10 lakh. The hotel industry has long demanded to at least lower the threshold for infrastructure status from Rs 200 crore investment to Rs. 50 crores.

Hospitality industry is a major employment generator

The importance of hospitality sector grows in the case of India because it remains a labor-intensive sector. It is not a sector where automation is going to significantly bring down the demand for human labor. In a country with high unemployment rate and world’s largest population of young people, hospitality sector is a major source of employment. According to data from Ministry of Tourism, around 80 million direct and indirect jobs are created by the hospitality & tourism industry in India. The sector is also a major generator of foreign exchange for India. Giving boost to this sector makes sense for the upcoming Interim Budget.

Lowering of GST rate will give relief to domestic tourists

After the Covid, a large part of demand for hotels is driven by domestic tourists. These tourists are more price sensitive than their international counterparts. Lowering of GST rates on hotel rooms will provide relief to domestic tourists.

Granting of infrastructure status will lower the cost of capital for the industry. It will be able to get loans at lower interest rates. This measure will give a boost to investments in the hotel industry. This again will be favorable for the economy.