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NEWS| Govt’s austerity drive to impact India’s hospitality industry

Indian government’s austerity drive will adversely affect the hospitality industry that has already been gasping under the impact of the economic slowdown. The Finance Ministry last week announced a ten per cent cut in non-plan expenditure in FY13 as part of austerity measures aimed at containing fiscal deficit. It also put a ban on holding department meetings and conferences in five-star hotels, among other measures. “About 10-12 per cent of our business comes from the government,” said Meena Bhatia, Vice-President, Operations, Le Meridien New Delhi.
“The government’s austerity measures will impact demand for meetings and conferences significantly,” said Siddharth Thaker, Managing Partner at Prognosis Global Consulting, a hotels consulting firm. Revenues of hotels in Gurgaon have fallen 15 per cent in the past three months while those in Bangalore have registered a near 20 per cent drop. “The first to get chopped (in a slowdown) are corporate meetings and entertainment,” said Kamlesh Barot, President, Federation of Hotel & Restaurant Associations of India. Last week, government data showed India’s GDP growth rate had slowed to 5.3 per cent in the final quarter of FY12, compared with 6.1 per cent in the previous quarter and 9.2 per cent a year ago. “Kolkata, which has a shortage of hotel rooms otherwise, is unable to fill the existing number of rooms. The slowdown in IT businesses is hitting Chennai and Bangalore markets as well,” said Barot. “We are largely dependant on business from the private sector, where there is currently a tendency for cost-cutting,” said KB Kachru, President, South Asia Operations, Carlson Hotels. Even as hotels face pricing pressure, costs are on their way up, informed an ET report by Ravi Teja Sharma. Gross operating profits for hotels in FY12 were down 12-15 per cent from a year ago, largely because of inflation and an increase in labour costs. “In the past few quarters, hotels have not been able to increase rates due to pressure from corporates,” Thaker said. “Corporates are spending on conferences, but at much lower rates. They are negotiating for 10-15 per cent lower rates,” Bhatia said.

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