Inforamtion about

The thrust during the Eight Five Year Plan, for the development of tourism infrastructure has been proposed mainly through private sector. However, the State Governments would continue to play a significant role in providing the essential infrastructure. An important scheme included in the Eighth Five Year Plan of this sector is the involvement of private sector by providing better incentives and equity support towards the project cost. Another important scheme for strengthening of tourism infrastructure the `Special Tourism Areas' Scheme under which participation of the Central/State Governments and private
sector is envisaged.

NEED FOR INVESTMENT

Shortage of hotel accommodation in the country is a major bottleneck in promotion and development of tourism. At present India has about 45,000 approved hotel rooms as against requirement of 50,000 rooms. It is estimated that the country requires about 89,000 hotel rooms by the year 1996 and about 100,000 hotel rooms by the turn of the century Besides Hotels, there is also a hard felt need for development of tourism related services like travel and tour-operating agencies, transportation and other services providing leisure, entertainment, convention facilities, etc.

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HIGH PRIORITY INDUSTRY
The development of tourism and allied infrastructure is on high agenda of the nation. The hotels and tourism related industry has been declared as a `High Priority Industry' for development.The terms `hotels' includes restaurants, beach resorts and other tourist complexes to tourists. The terms `tourism  related industry' includes among other the following:
     -    Travel agencies, tour operating agencies and tourist transport operating agencies;
     -    Units providing facilities for cultural, adventure and wildlife experience to tourists;
     -    Surface,   air and water transport facilities   for tourists;
     -    Leisure, entertainment, amusement, sports and health units for tourists;
     -    Convention/seminar units and organizations.

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FOREIGN INVESTMENT
The horizons for foreign investment have been widened. "Hotels and Tourism related industry" is now eligible for approval for direct investment upto 51 per cent foreign equity. These approvals will be available if the foreign equity covers foreign exchange requirements for import of capital goods. Higher foreign equity participation on specific proposals are also considered on a case to case basis. Non resident Indian investment is allowed up to 100 per cent. Dividends on investment are repatriable and the monitoring of outflow of foreign exchange on account of dividend payments are to be balanced by export earnings over a period of 7 years beyond which no balancing would be required.

The procedures for foreign investment in hotels and tourism related industry have been simplified and bottlenecks removed. Applications for investment upto 51 per cent foreign equity can be filed with the Reserve Bank of India which will issue permission straightaway if the import of capital goods is covered by the foreign equity and the licence for import of capital goods will be given.

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FOREIGN COLLABORATION

In the fast changing world of technology the relationship between suppliers and users of technology is recognised. With a view to improve technology, automatic approvals are now available for foreign   technology   agreements related   to   high   priority industries. In hotel industry such approvals are available automatically subject to fulfillment of following parameters.
     (a) Technical and Consultancy Services
          Lump sum fee not exceeding US$ 200,000.
     (b) Franchising & Marketing/Publicity Support :
          Upto 3% of the gross room sales
     (c) Management fees :
          A Management Fee upto 10% of the foreign exchange earnings provided the foreign party puts in at least 25% of the equity. This will cover payments for marketing and publicity support as well.No permission is now required for hiring of foreign technicians.Applications (10 copies) for automatic approval for foreign technology agreements and/or management contracts can be made to Reserve Bank of India who will accord automatic approval and the entrepreneurs can approach authorised dealers for release of foreign exchange.

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INCENTIVES
India is opening up for tourism in a big way. The Ministry of Tourism is the nodal agency for development and promotion of tourism. To encourage private investment in the hotels and tourism related industry various incentives and concessions are available. The Tourism Finance Corporation of India has specifically been set up to render financial assistance to the private sector for development of tourism related services and facilities. Loans are also available for Industrial Finance Corporation of India and the State Financial Corporations. The Government gives interest subsidy on the loans granted by these financial institutions. The incentives and concessions include:
(1) Tax Exemptions
     -    Of the income attributable to foreign exchange earnings of the hotels, 50% is exempt from Income Tax straightaway and the balance 50% is also exempt if reinvested in tourism industry.

     -    Approved hotels functional after 31.3.1990 but before 1.4.1995 are eligible for Tax Holiday deductions. The deduction ranges between 25 - 30 per cent of the  profits and is available for ten years.

   -    Rebate is allowed on tax equal to 20% of the cost of shares upto

Rs. 25,000/- in new equity in hotel industry and other tourism related activities.

     -    Exemption for Expenditure Tax for a period of 10 years(w.e.f. 1.4.1991) will be granted to new approved hotels in a hilly area, or a rural area or a place of pilgrimage or such other place as Government may       specify. These hotels will also be given 50% exemption from income tax. This concessions would be available before 31.3.1994.

(2) Depreciation :

     -    The hotel buildings are eligible for depreciation at the rate of 20% with effect from 2.4.1987 (Assessment   year 1988-89). Furniture and fittings used in hotels have been allowed a high rate of depreciation of 15% against the general rate of 10%.

(3) Interest Subsidy :

     -    For the approved projects, an interest subsidy is provided for the loans granted by Industry Finance Corporation of India, Tourism Finance Corporation of India and State Financial Corporations. Four and Five  star category hotels are granted one per cent interest subsidy upto a minimum of Rs. 75 lakhs and hotels of 1 to 3 star category are granted interest subsidy of 3% on the entire amount of loan.

(4) Foreign Exchange Incentive Quota:

     -    Approved hotels, Travel agents, Tour operators   are eligible for foreign exchange Incentive Quota which is 10% of their direct foreign exchange earnings. This quota is available for essential imports including vehicles, overseas promotional tours, publicity and dvertising, etc. Additionally, for hotels 2.5% of foreign exchange earnings of the preceding year can be released for tourist promotion and travel   abroad   subject to a maximum of Rs. 15 lakhs.

(5) Concessional Customs Duty:

     -    Customs duty on specified items has been reduced to the level as applicable to project imports provided the goods imported are required for initial setting up of the hotel or for substantial expansion of the hotel. This includes equipment for kitchen, health club,laundry, house-keeping, energy saving devices, etc.

     -    Equipment for Adventure Sports can also be imported on a concessional rate of duty.

     -    Priority   consideration is also given to   approved projects in allotment of construction materials like cement,   steel   and   for  elephone, telex,   LPG connections.

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AN OPPORTUNITY NOT TO BE MISSED

With India's new policies, investment in hotels and tourism related industry has never been so attractive. The increased foreign equity participation, automatic approvals for investment and collaborations, liberalisation of import controls, easy procedures for investment, tax benefits and incentives present on excellent opportunity for investment.

          The Government Policy sends a clear message :

          India welcomes foreign investment

          It also welcomes technical collaboration.

For proposals which qualify for automatic approval, entrepreneurs should write to :

                   The Exchange Control Officer,
                   Reserve Bank of India,
                   New Central Office Building,
                   Shaheed Bhagat Singh Road,
                   Bombay - 400 023

                   Tel : 2861602, 2860604
                   Fax : 2864667, Tlx : 011-82318/82455.

                   For other proposals entrepreneurs should write to :

                   The Joint Secretary,
                   Secretariat of Industrial Approval (SIA)
                   Department of Industrial Development,
                   Ministry of Industry,
                   Udyog Bhawan,
                   New Delhi - 110 011
                   Fax : 3011770
                   Tlx : 031-6565

          For further information and assistance, write to :

                   The Director General
                   Department of Tourism,
                   Government of India,
                   Transport Bhawan,
                   1, Parliament Street
                   New Delhi - 110 001
                   Fax : 371-0518
                   Tlx : 031-66527

N.B.: UPDATED ON JUNE 1, 1992.

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Procedure for Foreign Investment upto 51 percent in
Trading companies primarily engaged in   export activities. This section outlines the procedure for Foreign Investment upto 51 percent in Trading companies  primarily engaged in   export activities.

    The criteria for grant of Export House, Trading House or Star Trading House certificates are laid down in the Import Export Policy, 1991-93. These stipulate that effective from April 1, 1992, the average net foreign exchange earnings in the three preceding licensing years should not be less then Rs. 60 millions for Export House Certification; Rs.300 millions for Trading House certification; Rs.1250 millions for Star Trading House Certification. Further, such certificate will also be granted if the minimum net foreign exchange earning in the immediate proceeding licensing year is not   less then Rs.120 millions for Export House; Rs. 600 millions for Trading House and Rs.1500 millions for Star Trading House.

    Provisions for approval

    (i)   New Companies

          In the case of a new company, the Reserve Bank of India will give automatic approval for foreign investment upto 51% foreign equity on the following basis:

          (a) Such a company will register itself with Ministry of Commerce (Office of Director General for International Trade) as registered exporter/importer.

          (b) The repatriation of dividend will be permissible only after the company has registered itself with the Ministry of Commerce (Office of Director General for International Trade) as an Export House /Trading House/Star Trading House under the provisions of the prevailing Import & Export Policy.

    (ii) Existing Companies.

    In case of existing companies already registered as Export Trading/Star Trading House, the Reserve Bank will give automatic approval on an application for foreign investment upto 51% foreign equity. The approval will be subject to the following requirements:

          (a) On receipt of RBI approval the company must pass a special resolution under Section 81 (1A) of the Companies Act proposing preferential allocation of the required volume of fresh equity the foreign investor.

          (b) The   Controller of Capital Issues will allow preferential allocation of equity in favour of the foreign investor on the basis of the RBI approval for expansion of foreign equity and the adoption of special resolution by the company. For such cases, the price of new equity will be fixed by the CCI on the basis of market prices, computed on the basis for the average price for the six months period preceding the date on which the application is received by the CCI, with a discount of upto 10% if requested by the shareholders resolution. The market price will take into   account any bonus issue which may have been declared in this period and adjust for the same. For companies taking such equity expansion disinvestment, if it occurs in future, will also be at market price computed on the same basis.
(*)

    Application Procedure

    Applications for approval under the provisions of para 5 above will be filed with the Reserve Bank of India in the prescribed form. The Reserve Bank of India will issue the necessary permission for the foreign equity investment under the Foreign Exchange Regulation Act, 1973(FERA). Inter-alia, this permission will include exemption from the operation of     sections 26(7), 28, 29 and 31 of FERA.

    Dividend Balancing

    The outflow of foreign exchange on account of dividend payments are to be balanced by export earning over a period of time in respect of all approvals given under the provisions outlined in para 5 above. Monitoring will be done by the Reserve Bank of India. The balancing will be done following basis:

          (i)   The balancing of dividend would be over a period of 7 years reckoned from the date of recognition as Export House/Trading House/Star Trading House for new companies, and from the date of allotment of the shares raising the level of foreign equity to the approved level in the case of existing companies.

          (ii) The amount of dividend payment should be covered by export earnings recorded in years prior to the payment of dividend or in the year of payment of dividend.

              (*) Pursuant to the Finance Minister's announcement in the Budget speech for 1992-93, to do away with Government control on issue of capital and premium thereof by Indian companies. An ordinance to give  effect to the above has been promulgated by the President of India on 29/05/92.

               Indian companies, shall after conforming to the disclosure and investment protection guidelines, to be announced by Securities and Exchange Control Board of India (SEBI) will be free to make Public  issues of capital with or without premium.

                  As such clause (ii) (b) above is no longer applicable.

N.B.: UPDATED ON JUNE 1, 1992.