The Confederation of Indian Industry and real estate consulting firm Cushman & Wakefield recently launched a report on the Indian hospitality industry. The report, “Survival to Supremacy: India Hospitality Story 2012 & Beyond,” notes that globally, the hospitality sector is “one of the most sensitive sectors that is affected by any and all events — global, regional or local,” and points out that “while impact of global conditions may not have been very positive on many other aspects of India’s economy, the travel and tourism industry managed an annual growth rate of 8.9% in foreign tourist arrivals.”

According to Akshay Kulkarni, regional director for hospitality in South and Southeast Asia for Cushman & Wakefield, apart from traditional business or leisure travel, India’s hospitality sector has been witnessing interest from a variety of segments like meetings, incentives, conferences and exhibitions (MICE), wellness tourism, and spiritual and pilgrimage tourism. “The demand has been strong from both foreign as well as domestic tourists,” Kulkarni notes. “Given the rather diverse nature of demand, the hospitality industry is also looking at creating adequate products to service the varied tourist requirements. With support and initiatives by the governments at various levels, the hospitality sector is moving toward comprehensive growth.”

The report points out that as noted by the World Travel Tourism Council (WTTC), the contribution of travel and tourism in India in 2011 was 6.4% of total GDP. By the end of 2012, this is projected to increase to 7.3%. The investment made in this sector in 2011 was Rs. 1,254 billion, approximately 5.1% of the total investment in the country and is expected to rise to 12.3% by the end of 2012.

However, the report also says that India’s hospitality sector is not ranked high on the global competitive index. According to the Travel & Tourism Competitiveness report of 2012 by the World Economic Forum, India is ranked 12th in the Asia Pacific Region and 68th overall. In tourism infrastructure, India remains at a low 89th-place rank. At the same time, though, the report is bullish in terms of outlook. It suggests that “though the performance of the Indian hospitality market has been below par compared to the high occupancy levels of 2007, the sentiments in the markets are improving. There is a widely-held consensus that the Indian hospitality industry will register improved ARRs [average room rates] and occupancy post-2013 and the markets will stabilize in 2015-2016. The report goes on to say that the industry is “expected to witness strong performance backed by proactive improvements by the government in licensing and development policies that will further facilitate growth of the hospitality industry and make India a strong and much improved competitor in the global arena.”

Occupancy rates may see an upward trend in the second half of 2012 keeping ARRs steady, Kulkarni predicts. “However, since there is a substantial supply that [is] expected to enter the market over the new few years, the pressure on occupancy rate and ARRs, will continue,” he notes. “The phasing of the new inventory and gradual growth in the demand for hotels will help keep the rates at modest levels across the country.” Going forward, the group expects average room rates to improve in the next 12-18 months on account of stability in the economy and expected growth of tourism in India. “Also, with more and more international brands operating in the country, the market will move toward being more organized,” Kulkarni notes. “[It will also experience] standardization of processes including cost per room night.”