Loan Assistance to Tourism Industry

Tourism Finance Corporation of India has been set up specifically to meet the loan requirements of tourism industries.

Loans are also made available to tourism industries by other financial institutions like Industrial Finance Corporation of India, State Financial Corporations, State Industrial Development Corporations etc.

Investment Facilitation Cell

An “Investment Cell” was set up in August 1995 to undertake the following activities:

	Formulation of national investment policies with respect to tourism industries.
	Co-ordination and integration of State policies on tourism.
	Prepare investment profiles for each state in collaboration with the respective State Governments. These profiles will include information on identified priority centers for tourism development, details of existing infrastructure, expected demand, availability of land and other support services, agencies to be contacted etc.
	Regular interactions with prospective entrepreneurs both within the country and abroad to promote investment in tourism
	Establishing linkages with the Ministry of External Affairs to highlight investment opportunities in tourism abroad through their investment cell.
	Process investment proposals received from both local and foreign investors and obtain approvals and clearances from various agencies like FIPB, SIA, Environment Ministry etc
	Assist the entrepreneurs in getting import licenses, finance, land etc. by coordinating with the respective agencies and the State Governments
	Provide technical assistance wherever required.
	In consultation with State Governments devise a “Single Window System” to facilitate investors to obtain various clearances speedily
	To formulate a statutory framework for identification, creation and establishment of Special Tourism Areas and Mega Tourism Projects for development of tourism infrastructure.
	To co-ordinate with the ‘Investment Promotion and Infrastructure Development Cell” in the Ministry of Industry with regard to infrastructural requirements, facilitation and monitoring of investment in the tourism sector.

Incentives for Tourism Industries

4.7 The endeavor of the Government is to achieve sustained growth of tourist facilities in the private sector and to ensure high standards of quality in their services. Tourism has, therefore, been given the status of an industry and several incentives have been made available both by the Central and State Governments.

The incentives being made available by the Central Government include:

	Interest subsidy of 3% on loans taken from financial institutions is available from 1 to 3 star categories of hotel projects outside the metropolitan cities of Mumbai, Calcutta, Delhi and Madras. A subsidy of 5% is available to such hotel projects if they are located in the travel circuits and destinations identified for intensive development under the National Action Plan for Tourism. Heritage Hotels are eligible for a higher rate of interest subsidy of 5%.
	As a fiscal incentive, under Section 80 HHD, 50% of profits derived by hotels, travel agents and tour operators in foreign exchange are exempt from income tax. The balance amount of profits in foreign exchange is also exempt, provided it is reinvested in tourism projects
	With the efforts of the Department of Tourism, the Ministry of Finance has reintroduced Section 80 1A (iv) for the hotels units which start operating between 1-4-97 and 31-3-2001. The hotels located in the rural areas, hilly areas and places of pilgrimage are allowed 50% exemption in their profits. Whereas, for hotels located in the other areas, the exemption is 30%. This is however, not applicable to hotels located in the four cities of Mumbai, Delhi, Calcutta and Chennai.
	Benefits have also been made available under the Liberalised Exchange Rate Management System (LERMS). Hotels, travel agents, tour operators and other tourism industries have been given facility to open and operate Exchange Earners Foreign Currency (EEFC) Account. The procedure for release of foreign exchange for specified purposes has been streamlined and liberalized.
	Import of special items for hotel industry is permitted subject to import entitlement. Concessional customs duty is charged for import of specified goods required for initial setting up or substantial expansion of hotels.
	In terms of the policy announced in the Parliament on 3 rdMay, 1993, a new Export Promotion Capital Goods (EPCG) Scheme was introduced for the Service Sector which includes hotels and restaurants, travel agents and tour operators. Under this Scheme, Capital goods can be imported at a concessional duty of 15 percent subject to fulfillment of an export obligation over a period of time. The duty has now been reduced to 10%. The hotel sector is now eligible for import under Zero Duty also.

National Tourism Awards

The Department of Tourism has a scheme of presenting National Tourism Awards to hotel industry and travel trade with a view to improve their performance and service standards. These awards were presented by Shri Krishna Kant the Honourable Vice President of India at New Delhi on 25 th January 1998 to mark the beginning of the Tourism Week. Apart from existing awards for hotel industry and travel trade, Department of Tourism has instituted new categories for the National Tourism Award to boost these hidden segments of the tourism industry:

	Tourist Transport Operators
	Restaurants (Independent of Hotels).
	Travel Writers
	Travel Books
	Travel Magazines / Periodicals / Journals / Guides.
	Tourist Films / A.V. Presentation.
	Most India Friendly Overseas Tour Operator
	Most Innovative and Unique Tourism Project.
	Best Tourism Performing State
	Best Tourism Facilitator State.
	Best Maintained Tourism Friendly Monument.
	Best Maintained Tourism Friendly Wildlife Sanctuary.
	Best Eco-friendly Tourism Project/ Organisation.
	Golden Jubilee Award for Outstanding Contribution to Tourism.

4.9 The list of the National Tourism Awards Winners for the year 1996-97 is attached (APPENDIX-IV).

INVESTMENT OPPORTUNITIES IN TOURISM IN INDIA NOW

Long associated with adjectives and clichés like ‘a slumbering giant’ and ‘the world’s largest democracy’, India today is a whole new country- vibrant, active and alive.

Thanks to the economic reforms initiated in 1991, there is a sense of urgency permeating every sector- determination to catch up with the rest of the world. More importantly, this urgency has translated into the kind of economic indicators and figures that interest even the most conservative investors. For instance,

The World Bank ranks India as the world’s 6 th largest economy in terms of purchasing power.
The country’s 300 million strong middle class today has the disposable income to afford the purchase of branded consumer goods and services following the patterns seen earlier in the developed world. With the size of this strata increasing to 600 million by the year 2000, India will be one of the fastest– growing markets in the world.

In order to ensure that economic progress continues at a rapid pace, the Government of India ‘de-regulated’ a number of policies. Among them were:

	The abolition of Industrial Licenses except in the case of 15 hazardous and environmentally sensitive industries.
	Automatic approvals in the case of foreign direct investment up to 51% of equity in 35 high priority areas.
	The granting of expeditious approvals by the Foreign Investment Promotion Board in the case of all investment proposals not eligible for automatic approval.
	The abolition of import licenses except in the case of consumer goods.
	The introduction of a unified exchange rate for Indian Rupee and its full convertibility on current accounts.

Result?

6,436 foreign investment proposals with a total of about US$ 34,400 million were approved from August, 1991 to May 1997 including 358 projects with an investment of US$ 4,300 million in the tourism related industry.

India: It’s Got Everything

Beaches better than Hawaii’s. Mountains taller than Mount Blane. Deserts more romantic than those of Arabia. Seas bluer than the Mediterranean. More forts and palaces than all of Europe’s put together. Forests, flora and fauna enough to excite the most enthusiastic nature-buff. India’s got it all. And best of all, in pristine condition- just waiting to be explored.

This is where you step in. As an investor in tourism related activity.

The Government of India recognizes the vital role that the private sector will play. Tourism is to be an even more important economic activity that what it is today. If this industry is to earn more than the US$3064 million (Approx. Rs.10,417 crores) it did in 1996-97, and if India is to meet the accommodation needs of the millions of foreign tourist and business travelers it expects, in addition to those f 141 million domestic travelers the participation of the private sector is a must.

Pin Pointing the Potential from Snack Counters to Super Resorts .

Opportunities abound for everyone. They are there in the traditional tourism related areas as well as in the more novel ones. In fact, the term ‘hotel and tourism related industry’ encompasses a spectrum of activities and facilities wide enough to interest just about any type of investor.

The term ‘hotel’ includes hotels, motels, way-side amenities, restaurants, beaches, hill and desert resorts, heritage properties and other kinds of tourist complexes which provide accommodation or cater to the food requirements of both domestic and foreign tourists.

The term ‘tourism-related industry’ includes domestic airports, golf courses, food and craft training institutes, amusement parks, aerial ropeways, water sport complexes, and:

	Travel agencies, tour operating agencies and tourist transport operating agencies:
	Surface, air and water transport facilities such as cruises for tourists.
	Conventions, seminar units and organizations.

To give you a perspective of the potential, here’s one example.

If you take into account just the existing destinations and tourist circuits, India needs at least, 1,25,000 classified hotel rooms to accommodate the business, leisure and domestic travelers it expects. Presently, the country has just 62,000 rooms in the ‘approved’ sector. There are another 41,000 in the pipeline, which leaves a gap of 22,000 rooms to be built. Add to this the new circuits being developed throughout the country and the gap increases dramatically.

Understanding India

India is a republic. The country comprises of a number of States and Union Territories. At the centre is the Union Government. Both the Union Government and the State Governments have several departments and specialized agencies to deal with specific subjects and regulations. For example, the Central Department of Tourism is concerned with the overall coordination and the planning of tourism development in the country, apart from undertaking tourism promotion and publicity abroad.

It also provides incentives and undertakes development schemes. The Reserve Bank of India, on the other hand, is a specialized agency dealing with foreign exchange regulations and the granting of automatic approvals for foreign investment and collaboration proposals.

The delivery system and infrastructure for tourism are within the purview of State/ UT governments. They control all factors of production, including land in their respective territories. States, therefore, help entrepreneurs in several ways to set up business ventures within their respective jurisdictions through assistance which covers both incentives and facilities.

Imports

	Hotels approved by the Department of Tourism, Government of India are entitled to import essential goods relating to the hotel and tourism industry up to a value of 25% of the foreign exchange earned by them during the preceding licensing year. Similarly, approved travel agents/ tour operators and restaurants are entitled to import goods up to a value of 10% of the foreign exchange earned by them during the preceding licensing year. These licenses are issued on the recommendations of the Director General of Tourism, Govt. of India.
	Capital goods, raw materials, components, etc., can be imported without any restriction except to the extent that such imports are regulated by the Negative List of Imports. Import of special items required by hotels, restaurants, travel agents, tour operators, tourist transport operators and convention units etc. is permitted against a license.
	Recreational bodies can import goods considered essential for their use up to a value of 10% of the foreign exchange earned during the preceding licensing year.

Export Promotion Capital Goods (EPCG) Scheme

The import of capital equipment (including up to 10%) by hotels and restaurants, travel agents and tour operators is allowed at a concessional rate of customs duty of 10% subject to an export obligation four times of CIF value of the imports to be fulfilled in a period of 5 years.

 In case of CIF value of the imports of Rs.20 crores (approx US$6.25 million) or more, no duty is payable. However, the
    export obligation will be 6 times the CIF value and the period of fulfilling the export obligation will be 8 years.

CONCESSIONAL CUSTOMS DUTY

	Customs duty on specified items has been reduced to the level as applicable to project imports i.e. 25%, provided the goods imported are required for the initial setting up of the hotel or for any substantial expansion of the hotel.
	Equipment for adventure sports can also be imported at a concessional rate of duty.
	Customs duty on specialized food items have also been reduced to 25%.

INCENTIVES

Realizing that tourism is a capital intensive activity, the Tourism Finance Corporation of India was set up. It renders financial assistance to the private sector and caters to a variety of investors.

The Central Government offers the following incentives : *an interest subsidy to hotel projects in the 1 to 3 star category on loans sanctioned by the Tourism Finance Corporation of India, the Industrial Financial Corporation of India and the State Financial / Industrial Corporations provided that the projects are outside the four metros – Delhi, Mumbai, Calcutta and Chennai. This subsidy increases in the case of hotels constructed in the travel circuits – cum – destinations identified for intensive development under the NAPT (National Action Plan for Tourism) as well as for the heritage category of hotels.

	In addition to the interest subsidies, there is a substantial subsidy available for the conversion of any interesting building (bungalow, palace, or haveli) more than 75 years old into a Heritage Hotel.
	50% of the profit derived by hotels, travel agents and tour operators in foreign exchange are exempt from income tax under Section 80HHD of the Income Tax Act. The remaining profits in foreign exchange are also exempt if reinvested in a tourism– related project.
	Hotels located in the hilly areas, rural areas, places of pilgrimage or a specified place of tourist importance will be eligible for 50% deduction from profit/ gain if they start operating between 1.4.1997 and 31.3.2002. They will also be exempt from payment of Expenditure Tax for 10 assessment years.
	In respect of hotels which start operating between 1.4.1997 and 31.3.2002 in other places except Delhi, Calcutta, Mumbai and Chennai, the deduction allowed is 30% only (for 10 assessment years).

LIBERALISED EXCHANGE RATE MANAGEMENT SYSTEM (LERMS)

	Hotels, travel agents, tour operators, and other organizations connected with the tourist trade are covered under LERMS. Authorized dealers can release foreign exchange for business visits, participation in conferences, seminars, training, etc. The prior approval of the Department of Tourism is not necessary.
	The facility to open and operated Exchange Earnest Foreign Currency (EEFC) Accounts has been extended to hotels, travel agents, tour operators etc. Under the scheme, 25% of inward remittances in foreign exchange can be credited to this account and utilized for specified purposes.

The Department of Tourism and You

We realize that identifying project opportunities, locations and sites is a long time-consuming process- the reason, why the Department of Tourism has formed an Investment Cell.

In additional to working out a plan for potential projects, this Investment Cell will act as a nodal agency that facilitates detailed interaction between you and the State Government, you and the country’s premier financial bodies and between you and the various ministries. For example, the Investment Cell will identify projects and sites keeping in mind the financial parameters that you want to operate within. It will help arrange site visits, facilitate clearances and permits from the concerned State Government; hasten project clearances from RBI and the FIPB and aid you in getting the relevant approvals from the different ministries.

State governments also offer various incentives independently

In short the Investment Cell will act as your facilitator through the entire process from step one on.

If you would like any more information, feel free to write to, or fax us at either of the following addresses:

The Director General of Tourism And Ex-officio Additional Secretary

Ministry of Tourism, Government of India, Transport Bhawan, New Delhi – 110 001. INDIA

Tel: 00 91 11 371 1995, 332 7095.

Fax: 00 91 11 371 0518

Director (Investment Cell)

Ministry of Tourism

Government of India, c-l Hutments, Delhouse Road, New Delhi – 110 011

Tel: 00 91 11 301 8229

Fax: 00 91 11 301 1518.

Visit our website: http:/www.tourindia.com

E-mail:tourism@x400nicgw.nic.in