Taking tourism to greater heights

The decision of the GST Council to slash tax on room rates for hotels across price-points is a sign of better things to come

We are in the middle of a social revolution in many ways. Whether it is in hospitality, aviation, consumer technology or even space missions, affordability and access are the key to success. I have always maintained that low cost does not mean low quality. 

It is not always critical to create a completely new business but more important is that we approach the same old legacy business in a completely different way with the objective of making the product or service more consistent, affordable and accessible to millions of consumers. The hospitality business is not new in India. It has been around for hundreds of years. And for the most part, it has operated in a more or less fixed manner for guests and operators alike. 

With changes in technology and the arrival of the “dare to dream” generation, we have been able to make a lot of progress in the way many products and services, including traditional hospitality, are being conceived and delivered. I truly believe that technology needs to be used to solve fundamentally hard problems. And in India we have many — whether it is education or nutrition or travel or accommodation, these are fundamentally hard problems to solve in our country. 

It is heartening to see how regulatory changes have been keeping pace to benefit consumers, who are at the heart of the industry. Right from the implementation of the goods and services tax (GST) in 2017 to the changes introduced for the hospitality sector more recently, we are seeing a promising trend. Today, hospitality and tourism are one of the biggest job creators and India is the seventh biggest tourism and travel economy in the world, poised to add 10 million jobs in this sector alone by 2028, taking the overall tally to 53 million jobs. With the Prime Minister’s recent call to all Indians to travel to at least 15 tourist destinations within the country by 2022, there is huge promise in the days and years ahead for sustainable and inclusive growth of tourism in India. 

In this light, the decision of the GST Council to slash tax on room rates for hotels across price-points is welcome and a sign of better things to come. I will let the numbers do the talking. Consider this: For hotels with tariffs above Rs 7,500, a GST reduction to 18 per cent instead of the existing 28 per cent will mean an opportunity to not only increase seasonal and off-season occupancies but also make staying in India a competitive proposition even for foreign tourists.

The immediate term impact of this rate cut would be a rationalisation of tariffs, particularly in the upper-upscale and luxury segments as hotels adjust to lower rates, potentially stimulating higher demand and consequently occupancies. This, to a limited extent, will also narrow the GST rate differential between India and its neighbouring countries (which are at GST rates of 7-8 per cent) potentially drawing back large meeting, incentives, conference and exhibition (MICE) traffic that India was losing out on. 

For hotels with tariffs between Rs 1,001 and Rs 7,500, the reduction in GST to 12 per cent means more room for growth of operators and customers in the mid-segment. Today, the Indian middle class accounts for 19 per cent of our population and is predicted to rise to 70 per cent in the next three decades. 

Further, the decision to waive GST for hotels with tariffs of less than Rs 1,000 will bring about the same changes to hotels and accommodation options such as homestays and serviced apartments, as we have seen in the aviation and the telecom sectors over the past two decades, if we are able to guarantee predictable, quality hotel experiences at affordable prices. As the cost of access drops, the propensity to use the product or service is bound to increase exponentially. 

It may be too early to predict but this step may also encourage more activity in the space of building new hotels and spaces in all categories. While streamlining guidelines across states as well as the adoption of enhanced digitisation in the hospitality industry are measures that can further help the sector, the GST changes are a step in the right direction. I have always believed that India is a supply-constrained market. Anything that brings costs down and makes supply more affordable for the burgeoning demand is a huge reason to cheer and that too just before the festive season.

The author is CEO, India & South Asia, OYO Hotels & Homes