• India adds luxury under new regime

The luxury and upscale market is set to expand in India, with a number of new sites announced in recent weeks.

The news came as a new government in the country has inspired hope of a more business-friendly environment.

Announcements of growth have come from both domestic and international operators, with India’s ITC Hotels releasing news of six new hotels by 2018, including two resorts and its first property outside of India, in Colombo, Sri Lanka. The growth will take the company to 16 hotels.

The move into resorts will be a new direction for the group, which currently focuses on luxury business hotels in India’s key cities and business hubs. Nakul Anand, executive director, ITC Hotels, added: “We will continue to focus on our core business of luxury business hotels in the economic and business hubs of India, further establishing our position as the number one group for business travellers.”

The Ritz-Carlton Hotel Company announced a new hotel in Worli, central Mumbai, taking it to two properties in India. The brand is due to open 15 new hotels globally by 2016, taking it to over 100 properties.

Bob Kharazmi, global operations officer, said: “We have earmarked the Middle East, Asia, Australasia and the Indian sub-continent as key development regions in the post-2016 period to maintain our growth momentum. Given the rising number of visitors and exciting developments in infrastructure, we anticipate strong business and leisure tourism potential in these markets and look forward to keeping up the momentum.”

At Moevenpick Hotels & Resorts, the company has signed a management agreement with a local owner looking to make its first move into the hotel sector. The operator will add its third hotel in the country with the Moevenpick Hotel Kochi, due to open at the end of this year and featuring an extensive spa.

Andreas Mattmüller, COO, Moevenpick Hotels & Resorts, Middle East and Asia, said: “India has tremendous potential for further growth in the domestic and international travel segments. Last year, revenues from domestic tourism rose by 5% and that figure is expected to increase to 8% during 2014. Considering this along with the country’s planned infrastructure developments, we’re keen to continue expanding our existing portfolio in India by including additional key cities.”

Confidence amongst the business community has been buoyed by the results of the country’s recent elections, which saw the Congress party replaced by Narendra Modi’s Bharatiya Janata Party after decades in power. The election was the first time since independence that any party other than Congress has achieved an outright parliamentary majority and brings hope that much-need reforms can be executed.

One such move is to increase direct taxation to provide money needed to fund investment into the country’s infrastructure, a step which is likely to make the state more powerful. A proposed goods and services tax should also help to create a single market, replacing local levies and creating a simpler environment for companies to work in.

The country’s economy has long been viewed as full of promise, but recent years have not met expectations, despite growth in volume. Data released at the start of May by the World Bank found that India had become the world’s third-largest economy in 2011, having been the tenth-largest in 2005, moving ahead of Japan, while the US remained the largest economy closely followed by China. The World Bank has forecast a growth rate of 5.7% for this year, driven in part by an increase in investment.

The World Bank cautioned that India’s banking sector could suffer from growing exposure to company debt which could affect the government’s finances through its ownership of state banks and the need to prop up distressed banks.

The arrival of Modi has been largely welcomed by economists, with Chetan Ahya, Morgan Stanley’s chief Asia economist, telling Bloomberg: “The election results could be an inflection point for India’s story. The decisive election outcome suggests the new government will be able to implement reforms at a faster than previously expected pace.”

Ahya said that he expected that Modi would simplify approval and implementation policies for infrastructure and industry, help companies improve their balance sheets and boost bank’s capital.

Following the election result Citigroup and Nomura both raised their forecasts for the country’s economy, forecasting expansion of 6.5% in the 2016 financial year – up from 6.2% and 5.7%, respectively.

The BJP ran under the slogan “Good times ahead” and for those hoping that the country will fulfill its potential, they can’t come soon enough.

 

HA Perspective [by Andrew Sangster]: The contrast between India and China has been stark in terms of hotel development. China has been able to build the transport infrastructure and make available the land to enable the rapid roll out of hotels across the chain scales, from budget through to luxury.

In India, bureaucracy and corruption has hampered development while absurdly high land prices, partly a function of too little land being available thanks to bureaucracy and corruption, has made much development unprofitable.

The new government is likely to improve things but it will be gradual. India’s domestic hotel groups are too over leveraged to rush into rapid development and it is hard to see sufficient reforms coming through to encourage a rash of overseas investment.

All that said, India has enormous potential and the new government has the means to start unlocking it. The key will be if it stays the course.

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