Govt firms to get priority in KG gas allocation

The government plans to do away with the minimum area and capital requirements for foreign investments in realty projects involving hotels, cineplexes, health clubs and other tourism-related activities to help the tourism industry meet investment needs. However, to avail the relaxation, the projects must use at least 50% of the total built-up area for hotels or facilities promoting tourism, food and culture, said an official with the commerce and industry ministry who asked not to be named. Builders can develop commercial and residential real estate in the remaining space, he said. The current norms stipulate a minimum developable area of 25 acres and a minimum capitalisation of $10 million for wholly-owned subsidiaries of multi-national companies and $5 million for joint ventures investing in real estate. However, foreign investors will not be allowed to exit such projects before three years of completion of the project. The tourism industry badly needs foreign direct investment to construct hotels. “The sector has recorded an FDI inflow of $853 million since January 2000 till March 2008. To give a fillip to the hotel and tourism sector, further policy initiatives are urgently required,” said the official. According to tourism ministry estimates, there are about 1.2 million hotel rooms in the country. The requirement for 2010 and 2020 is estimated to be 2.9 million and 6.6 million, respectively. The department of industrial policy and promotion feels mixed projects are required for promoting tourism. The move will result in price rationalisation in hotel sector, said Manav Thadani, MD of hotel consultant HVS International. Over the last few years, tariffs have reached unrealistic levels, especially in metros, owing to a demand-supply mismatch. “Smaller ticket size of mixed-use projects would be commercially more viable and attract increased foreign investment,” said Gaurav Karnik, associate director, tax & regulatory services, Ernst & Young. “There has been a huge interest among foreign investors to invest in mixed-use format but they have been hesitant because of the minimum size and capital commitments,” he said.