TravTalk India Online Magazine
Despite its diverse range of offerings, India is still facing challenges in reviving its inbound tourism fully. While airlines are rapidly expanding and new destinations are emerging, the shortage of accommodation remains a significant hurdle.
Janice Alyosius
India’s inbound tourism sector is facing significant hurdles that are limiting its potential growth. While the country offers rich cultural experiences and luxury accommodations, rising hotel prices and a shortage of hotel rooms in key destinations are creating barriers for international visitors. One of the core issues behind rising hotel prices in India is the free-market system, where prices are dictated by supply and demand. Deep Kalra, Founder and Chairman, MakeMyTrip, explains, “The reality is it’s a free market. When hotel occupancy is high, the rates will go up. When occupancy is low, the rates will come down. But travellers tend to crib when prices go high, not when they get cheap rates.”
Kalra highlights that while travellers may feel dissatisfied when prices surge, this is a fundamental aspect of the free market. “You can’t have a free economy and then cap rates on the upper end. If that happens, hotels and airlines would also demand caps on the lower end,” he reasons. His advice to tourists is: “Book in advance to get the best rates.”
High prices are not unusual as per global standards
Arjun Sharma, Chairman, Select Group, also admits the increase in hotel rates but argues that India’s prices are in line with global standards. “The amount of investment that goes into building a hotel is absolutely phenomenal. Even when they speak of high prices, these are normal prices from a global standard,” he says. Sharma highlights that international luxury tour operators, like Abercrombie & Kent, report that their clients are willing to pay premium prices for exceptional service. He believes India’s hospitality sector stands out for its service quality, explaining, “Indian hospitality is probably among the top five experiences in the world. You can’t match the level of service you get in India anywhere else, not in Europe, not in Australia.”
While Sharma acknowledges that some areas in India face supply constraints, such as Delhi and Mumbai, he also points to the growth of peripheral destinations. “There is supply coming into the market. For instance, Manesar, just 45 minutes from Delhi, has seen a good demand, and the occupancy rate is around 60 per cent year-round,” he says, adding that some markets are tight, but others are expanding and this will address the supply-demand gap.
Supply shortage roadblock for inbound tourism
Despite these insights, the reality of limited accommodation availability continues to create problems for inbound tourism. Homa Mistry, CEO, Trail Blazer Tours India, explains, “We have business coming in for January, February, and March, but there is no availability. We can’t bring in people because there is simply not enough supply.” Mistry proposes that the government could facilitate solutions by promoting homestays.
How GST affects prices
Sanjay Basu, Chairman, Far Horizon Tours, raises another key concern of taxation. With an 18 per cent GST on hotel bookings and an additional 5 per cent GST on tour packages, the cost of accommodation becomes even steeper for tourists. “The 23 per cent combined GST on hotels and tour operators is definitely having a negative impact. The price is high enough, and adding this tax burden makes it even harder for India to compete globally,” he opines.
Basu argues that one solution could be to reduce GST rates. He suggests, “The 5 per cent GST on tour packages could be reduced to 1.8 per cent, as the margins for tour operators are already slim, at best 10 per cent. This would help ease the cost pressure and make India more attractive to international visitors.” Additionally, he believes, that offering tax incentives, similar to those given to the manufacturing sector, could stimulate growth in the hospitality industry.
Homestays as an alternative
While new hotel development takes time, Mistry proposes an alternative solution that could address the immediate accommodation shortage – promoting homestays. “If the government has a good policy for homestays and makes it easy for people to open their homes to tourists, a large part of the supply can be handled this way,” he suggests.
Expanding hotel supply for long-term solution
Beyond homestays, industry leaders agree that the long-term solution to India’s accommodation shortage is the expansion of hotel infrastructure. “The only real solution is a rapid increase in capacity. The government could play a role by offering relief in GST and providing incentives to grow the sector,” Basu suggests. He highlights the need for more investment to meet the growing demand for tourism, especially in regions that are currently underserved.
Basu also advocates for a global publicity campaign to showcase the diverse range of tourism experiences India offers.
Addressing challenges
The challenges of high hotel rates, limited supply, and taxes are real obstacles to India’s inbound tourism growth, but they are not impossible to overcome. By taking steps to lower taxes and increase accommodation options, India can create a more welcoming environment for international tourists. With the right investments and policies, India can continue to grow as a top destination, offering visitors exceptional service, diverse experiences, and unmatched cultural richness.
