Cash subsidy may check into budget hotels

NEW DELHI: It’s all about budget. The government might soon give cash subsidy to budget category hotels owing to shortage of rooms in the segment. The tourism ministry has proposed a cash subsidy of Rs 2 lakh per room for one-star category and Rs 3 lakh per room for two- and three-star category hotels to facilitate their growth. The proposal, first of its kind, will incentivise projects of private and public sector budget hotels such as Ginger (budget arm of the Indian Hotels Co), Hometel, Clarks Inn, ITDC hotels and others.

“The Planning Commission is evaluating the proposal of the tourism ministry to put in place the subsidy scheme during the 11th Plan period. Once cleared, the commission would commit funds for subsidy and operationalise the scheme. The proposal would also form part of the new plan document being finalised,” an official source said.

As per the proposal, private and public sector hotels that have been constructed and will start operating in five years can avail the subsidy provided they follow the ministry guidelines. “Around Rs 20 crore has been proposed for the first year (2007-08) and a total of Rs 320 crore for five years to give the subsidy. However, the Planning Commission is yet to allocate funds for the scheme,” a ministry of tourism official told ET.

The proposal for the new subsidy scheme comes at a time when there is a crunch of budget hotel rooms in the country. According to Federation of Hotel and Restaurant Association of India (FHRAI), of the total 1,10,000 hotel rooms in the country, only 35% are in the budget category. Also, it has estimated the country is short of 65,000 budget category rooms.

The ministry was earlier considering extending a scheme of interest subsidy for promoting growth of budget hotels in the country. However, the proposal was struck down as it would have been difficult to monitor its operations.

The news comes as a pleasant surprise to the hotel industry. “Hotel associations have for long been cribbing about multiplicity of taxes. If the proposal goes through, it will be quite an incentive for hotel players,” says Rahul Maini, COO of Clarks Inn, the budget brand of the Clarks group of hotels.

The investment per room for a budget hotel varies between Rs 5 lakh and Rs 15 lakh, depending on the city and the real estate prices. If the subsidy scheme is approved, one-fourth of investment in setting up such hotels would be subsidised.In this year’s budget, two-, three- and four-star hotels in NCR were granted tax holiday for five years.