ENTREPRENEURSHIP IN HOSPITALITY SECTOR

CHAPTER 4 ENTREPRENEURSHIP IN HOSPITALITY SECTOR 4.1 POLICIES FOR ENTREPRENEURSHIP Sound planning and policy initiative is the backbone for successful entrepreneurship development in any front and hospitality sector is not an exception in this regard. The experience of hospitality sector of many areas of the world has demonstrated that, on a long term basis, the planned approach to developing this service sector can bring benefit without significant problems, and maintain satisfaction level of the respective market segment. The scenario of entrepreneurship in the hospitality in India vis-à-vis Assam is in fact the result of policy initiatives undertaken over the years. The forgoing discussion critically highlights such policy initiatives associated with hospitality sector. 4.1.1 Industrial Policy 4.1.1.1 Central initiative When India attained Independence in 1947, the national consensus was in favour of rapid industrialization of the economy which was seen not only as the key to economic development but also to economic sovereignty. In the subsequent years, India's Industrial Policy evolved through successive Industrial Policy Resolutions and Industrial Policy Statements. Specific priorities for industrial development were also laid down in the successive Five Year Plans. The hospitality industry totally depends on the growth of primary and secondary sectors, i.e., they are interdependent. When there is a growth in the primary and secondary sector, the hospitality sector also grows. Thus, there lies a relation between the general industrial policies, resultant industrial development and the growth of hospitality sector, which itself attained industrial status in subsequent planning initiatives. There are different industrial policies announced by the Govt. of India since 1948. The first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy of industrial development. It made an important distinction among industries to be kept under the exclusive ownership of government, i.e., the public sector, those reserved for private sector and the joint sector. Subsequently, the 70

Indian Constitution was adopted in January 1950, the Planning Commission was constituted in March 1950 and the Industrial Department and Regulation Act (IDR Act) was enacted in 1951 with the objective of empowering the government to take necessary steps to regulate the pattern of industrial development through licensing. The Industrial Policy Resolution - 1956 suggested that emphasis on heavy industries would lead the economy towards a long term higher growth path. The resolution widened the scope of the public sector. The objective was to accelerate economic growth and boost the process of industrialization as a means to achieving a socialistic pattern of society. The Industrial Policy Resolution - 1956 classified industries into three categories. The first category comprised 17 industries. These included inter alia, railways, air transport, arms and ammunition, iron and steel and atomic energy. The second category comprised 12 industries, which were envisaged to be progressively state owned but private sector was expected to supplement the efforts of the state. The third category contained all the remaining industries and it was expected that private sector would initiate development of these industries but they would remain open for the state as well. Another objective of the Industrial Policy Resolution 1956 was the removal of regional disparities through development of regions with low industrial base. And hence adequate infrastructure for industrial development of such regions was duly emphasized. The Industrial Licensing Policy Inquiry Committee (Dutt Committee), constituted in 1967, recommended that larger industrial houses should be given licenses only for setting up industry in core and heavy investment sectors, thereby necessitating reorientation of industrial licensing policy. In 1969, the Monopolies and Restrictive Trade Practices (MRTP) Act was introduced to enable the Government to effectively control concentration of economic power. The new Industrial Licensing Policy of 1970 classified industries into four categories. First category, termed as Core Sector, consisted of basic, critical and strategic industries. Second category termed as Heavy Investment Sector, comprised projects involving investment of more than Rs.50 million. The third category, the Middle Sector consisted of projects with investment in the range of Rs.10 million to Rs.50 million. The fourth category was De licensed Sector, in which investment was less than Rs.10 million and was exempted from licensing requirements. The industrial licensing policy of 1970 confined the role of large business houses and foreign companies to the core, heavy and export oriented sectors. 71

With a view to prevent excessive concentration of industrial activity in the large industrial houses, the Industrial Policy Statement 1973 gave preference to small and medium entrepreneurs over the large houses and foreign companies in setting up of new capacity, particularly in the production of mass consumption goods. New undertakings of up to Rs.10 million by way of fixed assets were exempted from licensing requirements for substantial expansion of assets. This exemption was not allowed to monopolies and restrictive trade practices (MRTP) companies, foreign companies and existing licensed or registered undertakings having fixed assets of Rs.50 million and above. The Industrial Policy Statement - 1977, emphasized decentralization of industrial sector with increased role for small scale, tiny and cottage industries. It also provided for close interaction between industrial and agricultural sectors. Highest priority was accorded to power generation and transmission. According to the policy, the foreign companies that diluted their foreign equity up to 40 percent under Foreign Exchange Regulation Act (FERA) 1973 were to be treated at par with the Indian companies. The industrial Policy Statement of 1980 placed accent on promotion of competition in the domestic market, technological upgradation and modernization of industries. Some of the socio-economic objectives spelt out in the Statement were i) optimum utilization of installed capacity, ii) higher productivity, iii) higher employment levels, iv) removal of regional disparities, v) strengthening of agricultural base, vi) promotion of export oriented industries and vi) consumer protection against high prices and poor quality. Policy measures were announced to revive the efficiency of public sector undertakings (PSUs) by developing the management cadres in functional fields viz., operations, finance, marketing and information system. The Industrial Policy Statement- 1991, states that the Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increased competitiveness for the benefit of common man". The objective of the Industrial Policy Statement - 1991 was to maintain sustained growth in productivity, enhance gainful employment and achieve optimal utilization of human resources, to attain international competitiveness, and to transform 72

India into a major partner and player in the global arena. The focus of the policy was to unshackle the Indian industry from bureaucratic controls. Promotion of Foreign Direct Investment (FDI) has been an integral part of India s economic policy. The Government has ensured a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. FDI up to 100 percent has also been allowed under automatic route for most manufacturing activities in Special Economic Zones (SEZs). Though various industrial policies were formulated by the government of India in the successive years for the economic development of the country giving different incentives to the entrepreneurs, but these policies of government of India did not help much for the industrialization of North Eastern Region. The entrepreneurs were not willing to invest (specially the outsiders) because of its geographical location and its insurgency problems and hospitality sector is also not an exception in this regard. 4.1.1.2 Industrial policy for north east India Though through industrial policies of Government of India tried to mitigate the regional imbalances of the country but it could not succeed in the north east for one or other reasons. Realizing this, the Government of India formulated North-East Industrial Policy in December 1997 to mitigate regional imbalances for promoting industries in North Eastern Region giving incentives and subsidies under various schemes to the entrepreneurs. In December 1997, the Government of India announced a separate Industrial Policy for the North Eastern Region. The major features included providing incentives for the development of growth centers and IIDCs. It also included transport subsidies, attractive fiscal incentives for the establishment of new industrial units and substantial expansion of the existing units. This policy was replaced by the North East Industrial and Investment Promotion Policy, 2007 (NEIIP). According to the North East Industrial & Investment Promotion Policy (NEIIPP), 2007, the Central Government has approved a package of fiscal incentives and other concessions for the North East Region which would be valid for 10 years. The highlights of the policy are: Total Tax Free Zone, for units located anywhere in the North East. 73

Central Excise benefits available for goods. Transport Subsidy for both raw materials and finished products to and from the region. 30% Capital Investment Subsidy for new and expansion of existing units without any limit. Working Capital Interest Subsidy @3 percent on loan for industrial units. Comprehensive Insurance Scheme for industrial units where 100 percent premium would be borne by the Government of India. 4.1.1.3 State industrial policy The Government of Assam has also given a serious thought for developing industries realizing the goal of economic development which cannot be attained until and unless there is industrial development in the state. With this mission the Government of Assam has formulated first industrial policy in the year 1969 (8 th March 1969) to encourage investment in the state from outside the state (including India and foreign countries) as well as from local entrepreneurs in the same line with the industrial policy of Government of India. This policy encouraged local entrepreneurs to take up industrial ventures. It proposed to acquire land for the entrepreneurs in different parts of the state with facilities of water, power and roads. Though policies were formulated by the Government of Assam, no emphasis was laid for tourism infrastructural development although this industry has been gradually acting as a catalyst for economic development of the state. Therefore the hospitality industry of the state experienced a long phase of stagnation. In 1986, a new industrial policy came up which identified 14 thrust areas for industrial development of the state. These include balanced regional development through rapid promotion of Khadi and village industries, tiny and small and ancillary industries. The Industrial Policy 1991 emphasized rapid and sustained resource based industrialization to strengthen the state s economy and create employment opportunities. Apart from the above policies, the Government of Assam has framed Industrial Policies in the year 1997, 2003 and 2008. The aims and objectives of the 74

Assam Industrial Policy, 2008 are to: (i) generate economic development by accelerating the process of industrialization; (ii) generate employment and increase income by encouraging the establishment of micro enterprises; (iii) increase the share of the Industrial sector in the State Domestic Product (SDP); (iv) make Nature Economics Centric Development and (v) to make agro and rural area linked industrial investment as focused programme. Besides, the State Government would endeavor to encourage youths of the state, particularly the women entrepreneurs to set up industries, encourage helping increase exports and attracting Foreign Direct Investment (FDI) particularly from NRIs. The aims and objectives will be endeavored to be achieved by following suitable and appropriate strategies like creation of quality infrastructure, development of clusters, encouraging investment by fiscal incentives, allowing tax concessions to attract investment, facilitating access to market, facilitating mega investment, simplifying the government procedures, using an industry friendly administration, creating conducive atmosphere to induce investment. Fiscal incentives and government subsidies are also allowed for the rapid industrialization of the state through the policy. a) Interest subsidy will be provided to Micro industrial units @30 percent of the amount of interest paid on term loan to Bank/Financial Institutions for a period of 5 years from the date of commercial production subject to a ceiling of Rs. 1.00 lakhs per unit/year. b) Power subsidy will be provided to eligible units on power tariff paid by the unit on actual units consumed for a period of 5 years from the date of commercial production subject to the ceiling given below: Connected load Rate of subsidy Ceiling of subsidy per annum 30% Rs. 10.00 lakhs Up to 1.0MW 25% Rs. 25.00 lakhs Above 1.0 MW c) The fees payable for obtaining BIS/ISO/FPO/AGMARK and fees payable for getting the technical know-how from recognized research laboratory /institutions like CFTRI, CIPET etc. by eligible units will be subsidized to the extent of 50 percent subject to a ceiling of rupees one lakh per unit. 75

d) 25 percent of the cost payable to State Power Distribution Company for drawal of power line to the premises of the unit including the cost of transformer will be subsidized to Micro and Small industrial units subject to a ceiling of Rs. 10 lakhs per unit. This subsidy shall be available only once to a unit. For promoting industrial growth in the region Government of Assam has provided tax incentives for the different units. All eligible units, which manufacture goods in Assam, will be entitled to exemption of 99 percent of the tax payable under the Assam Value Added Tax Act, 2003 and the Central Sales Tax Act, 1956 subject to the limit mentioned below. Special incentives are also declared by the government for revival of sick units. Category Micro Small Medium and Large New Seven years, subject to maximum of 200% of fixed capital investment. Seven years, subject to maximum of 150% of fixed capital investment. Seven years, subject to maximum of 100% of fixed capital investment. Substantial Expansion Seven years, subject to maximum of 150% of additional fixed capital investment. Seven years, subject to maximum of 100% of additional fixed capital investment. Seven years, subject to maximum of 90% of additional fixed capital investment. 4.1.1.4 Tourism policy of the country The Government of India though they were trying for economic development in different sector but never gave a serious thought to the tourism sector till end of 1970s. The Government of India in 1982 has presented its first Tourism Policy. On retrospect, one could argue that the novelty of the subject, its low priority and the belief in its potential as a social engineering tool (in keeping with Indian public ideology at that time) contributed to a rather simplistic piece of work. Subsequently, when the government realized that Tourism Sector is one of the potential instruments for earning foreign exchange, employment generation and discouraging terrorism activities etc., it prompt the government in 2002 to present an updated policy document (www.wikipedia.org). For this, the tourism sectors was given various incentives to the 76

entrepreneurs engaged in building tourism infrastructure like hotel, lodges, restaurants, eating joints, transport etc and encourage local entrepreneurs to take up such activities. The main objective of the National Tourism Policy, 2002 is to promote sustainable tourism as a means of economic growth, social integration, and chance employment potential and to promote the image of India abroad as a country with a glorious past, a vibrant present and a bright future. The broad aims of the National Policy can be highlighted as: i) Promotion of tourism as a major engine of economic growth. ii) Harness the direct and multiplier effects of tourism for employment generation, economic development and providing impetus to rural tourism. iii) Focus on domestic tourism as a major driver of tourist growth. iv) Position India as a global brand to take advantage of the burgeoning global travel and trade and the vast untapped potential of India as a destination. v) Acknowledge the critical role of private sector with government working as a pro-active facilitator and catalyst. vi) Create and develop integrated tourism circuits based on India s unique civilization, heritage and culture in partnership with states, private sector and other agencies. vii) Ensure that the tourist to India gets physically invigorated, mentally rejuvenated, culturally enriched, spiritually elevated and feel India from within. The policy document takes into consideration seven key areas that will provide the thrust to tourism development. These are Swagat (welcome), Soochana (information), Suvidha (facilitation), Suraksha (safety), Sahyog (co-operation), Samrachana (infrastructure development) and Safai (cleanliness). One of the major objectives is the preservation and protection of natural resources and environment to achieve sustainable development. To strengthen India s socio-cultural structure, the tourism industry in India needs to be properly planned, developed and managed at all levels of government in partnership with the private sector. Having recognized the hotel industry as a priority industry, which needs further expansion of hotel accommodation, the Government of India has now come out 77

with a series of schemes to aid the hotel industry under which the approved hotels would be entitled to the following incentives and concessions. Of late, the Government has realized that suitable incentives and concessions should be made available to encourage hotel entrepreneurs of the private sector to invest. On the basis of the recommendations of National Committee on Tourism of Government of India, the Planning Commission has devised a package of schemes including monetary incentives, fiscal incentives and operational input incentives. (i) Tax Holidays Subject to the fulfillment of the conditions prescribed in this regard under section 80-1 of the Income Tax Act, in the case of approved hotels which started functioning after 31.3.81 but before 1.4.1990, 25 percent of the profits and gains derived by a Indian company from the hotel business are exempted from income tax for a period of eight years. All tourist enterprises such as hotels, tour operators, travel agent should be extended the benefits of section 80 HHC of the Income Tax Act. These benefits should be linked with foreign exchange earnings. 50 percent of the income attributable to the foreign exchange earning of hotels etc., should be allowed deduction straightway. For the remaining 50 percent the benefit of tax exemption should be available to the extent the income is reinvested in tourism industries. (ii) Depreciation Under Appendix-I of the Income Tax Rules, 1962 buildings used as hotels are eligible or depreciation at the rate of 20 percent with effect from 2.4.1987 (Assessment year 1988-89). In respect of furniture and fittings used in hotels, a higher rate of depreciation of 15 percent has been provided under item II (2) of Appendix I of the Income Tax Rules, 1962 as against the general rate of 10 percent. (iii) Hotels set up in Backward Areas Under section 80-HH of the Income Tax Act, 20 percent of the profits and gains derived from the business of hotels set up in specified backward areas is deductible from the taxable income for a period of 10 years, subject to certain conditions. There is a provision of securing central subsidy for industries set up in selected backward districts/areas. With effect from 1.1.1977, approved hotels set up in specified backward districts/areas having tourism potential are eligible for the grant of Central Investment 78

Subsidy under the Central Outright Grant or Scheme 1971. The level of subsidy was 25 percent in case of A category districts, 20 percent in case of B category districts and 15 percent in case of C category. But the present level of subsidy is uniformly available at 25 percent of the cost of the project or Rs. 1.00 crore whichever is less. (iv) Land Each major city has to have a master plan earmarking hotels sites. Since most major cities have shortage of land, the land use/zoning laws should allow hotels to be built in suitable areas. Government land may be allotted on long term lease basis. The annual lease rent as a percentage on the value of the bid should be on a graded scale as (i) 5 Star - 8 percent per annum, (ii) 4 Star - 6 percent per annum, (iii) 3 Star - 4 percent per annum and (iv) 2 Star - 2 percent per annum. In case of private land, capital gains tax has been waived to make the land cheaper to the buyer. Plots of land being sold for hotel construction is (a) exempted from chapter 37 (1) of the Income Tax Act and (b) Exempted from the provision of the Urban Land Ceiling Act. (v) Concessional Customs Duty Custom Duty on items included in the notification of ministry dated 2.1.86 has been reduced to the level as applicable to hotel projects, provided the goods imported are required for construction of new hotels or for expansion and modernization of the existing hotels. Waiving of Custom Duty on items like specialized machinery and equipment required by the hotel industry helps to keep the project costs low. (vi) Preferential Treatment for Essential Facilities (a) The essential facilities like telephone, telex and LPG need to be provided to the hotel industry on a priority basis. (b) Beside, water, electricity need to be available at industrial rate. (vii) Foreign Personnel Employment Foreign chefs, cooks and others employed by hotels to provide ethnic food and facilities may be treated as technicians and exempted from the payment of Income Tax as in the case of other industries. 79

(viii) Entertainment Tax At present cultural and variety programmes are subject to Entertainment Tax. Since it is essential on the part of a tourist, this tax should be abolished or made minimal to enable the hotel to provide entertainment to foreign and domestic clienteles. (ix) MRTP Act Hotels are exempted from the purview of the MRTP (Monopolies and Restrictive Trade Policy) Act. Incentives to channelize investment into the tourism sector (i) Institutional Loans Long term loans repayable in 20 to 25 years with a moratorium period of 4-5 years would be granted for the construction of hotel. The amount of loan should cover up to 80 percent of the total cost of the project and carry a low rate of interest. The approved hotel projects are eligible for the grant of loan by the Industrial Finance Corporation of India (IFCI) and also by other Central Financial Institutions. The IFCI loan is eligible for an interest subsidy of 1 percent on Rs. 75 lakhs of the loan amount in each case. (ii) Interest Rebate The approved 5-star hotels are entitled to rebate to the extent of 20 percent of the interest payable by them on institutional loans during any year if their foreign exchange earnings in the particular year exceed 50 percent of their total gross earnings. Approved hotels of other star categories are entitled to this rebate if their foreign exchange earning constitutes 25 percent or more of their total earning during the particular year, with a floor interest of 10 percent annually against the normal rate of 14 percent. For giving boost to medium priced hotel- accommodation both for domestic and international tourists, the rate of subsidy is to be increased from 1 percent to 3 percent in case of 1-3 star category hotels. Besides, the liberal term of finance would also be made available for renovation and modernization of facilities in exiting hotels. (iii) Foreign Exchange Incentive Quota Approved hotels are eligible for foreign exchange incentive quota which is determined at 10 percent of their direct exchange earning. This quota is available to 80

respective hotels for essential imports, overseas promotional tour, publicity advertisement etc. (iv) Grant for the Construction of Accommodation Direct granting at the rate of 20 percent of the average cost per room is to be given for the construction of hotel projects at various places of tourist interest other than those at metropolitan cities like Delhi, Bombay, Calcutta and Madras. (v) N.R.I. Investment In view of the prevailing resources constraints, both in the public and private sector, it is essential to tap all possible financing resources for investment in the hotel industries. Hotels quality for investment by Non-Resident Indian in the equity capital up to 100 percent as against the prevailing ceiling of 74 per percent subject to conditions laid down by the Reserve Bank of India. (vi) Exemption of Inter-corporate Dividend Income tax At present inter-corporate tax is an important impediment to the establishment of subsidiary hotel chains. The income of a company by way of dividends from a hotel company is to fully exempt from income tax, such incentive need to be given for the expansion of hotel chains which plays an important role in providing marketing and quality standard in tourism industry of the country. vi) Reinvested Profits-Exemption from Income Tax Surplus generated out of profits of hotels and reinvested in tourism projects is to be exempted from income tax. vii) Shareholders Investment To encourage equity participation in new hotel projects, the income tax relief provided under section 80CC will prove as an incentive for investment in hotels. The debt-equity ratio in tourism related projects like hotels is likely to be relaxed to 1:1.4 as against 1:1.5 in 1987. Besides, the pressure on the balance of payment is causing serious concern to the government. It is, therefore, considering wide-ranging measures to setup up foreign exchange earnings in the years to come (Mohanty, 2008). 81

4.1.1.5 Tourism policy of Assam 2008 Assam is comparatively the largest economy among the states of the Northeast region. It is also the relatively industrially advanced state in the Northeast India, because of its comparative proximity to the rest of the neighbouring South-East Asian countries and availability of infrastructure. Assam is India s gateway to the Northeast as well as to the neighboring countries of Myanmar, China, Bangladesh, Nepal and Bhutan, providing a vital link for trade with the Southeast Asian countries. The state is rich in natural resources such as natural oil and gas, rubber, tea, and minerals such as granite, limestone and kaolin. Assam tea is a well recognized product, the world over. With its pleasant climate and scenic landscape, Assam can be made a popular tourist destination. The state offers visitors a variety of choices from world heritage sites to temples and monuments. Yet for a variety of reasons this resources are unable to bring Assam in a prominent position that it deserves. Thus with a thrust to tourism promotion and to chart out bold new directions to tourism growth the State Tourism Policy has been formulated in 2008 with the vision to manage its comparative advantage in tourism resources and attractions in a sustainable and integrated manner to make Assam a major national and international tourism destination so that tourism enriches the quality of life and culture of the people and becomes an important catalyst for economic development of state as well as the region. The main objectives of the Tourism Policy 2008 are: To make tourism an important tool for socio economic development of the state and place the tourism sector on a high priority in the economic development of the state. To fully harness the tourism potential of the state in such a manner that it becomes environmentally sustainable, socio culturally enriching and economically beneficial to the people. To create awareness among the people of the state about the importance of tourism and evolve suitable institutional arrangements for effective participation of the people in promoting tourism, sharing the benefits and in developing a tourism friendly environment. To improve the quality of the existing tourism products to meet the new and emerging demands of tourists and to enable them to have unique experiences that they look for. 82

To promote adequate and comprehensive development of infrastructure of international standards. To devise pragmatic and long term human resource development programmes to create capacity for the local people to take advantage of the opportunities offered by tourism development. Encouragement to Public Private Partnership (PPP) for creating quality tourism infrastructure and ensuring better management in tourism projects. The different policies laid down by the government plays a pivotal role in the development of a nation or a state. All the investments in the private sector, including the hospitality sector depend on the existing policies of the government. Therefore the policies of the government must be encouraging enough to attract the private investors. Over the years, Government of India and Government of Assam have framed separate industrial policies to attract the investors. Industrial Policies of Government of India have helped many states to march to the path of progress in the field of industrial development like Gujarat, Punjab, Maharashtra, etc. However, Assam has not been able to prosper properly in the field of industrialization due to its geographical isolation and decade long socio-political unrest as compared to Indian counterparts. Realizing this, Government of India has formulated a separate North East Industrial Policy in 1997 which was replaced by North East Industrial and Investment Promotion Policy in 2007 for providing more benefits and incentives to the entrepreneurs of the North-Eastern states of India. Apart from Industrial policies, Government of India has also formulated tourism policies after realizing the potential of tourism sector and its contribution to the economic growth of the nation in the year 1982 and 2002 and has identified certain areas of the sector for investment incentive. These policies have been able to attract investment in the tourism sector which has encouraged building hotels in India at different functional levels. However, such policies of Government of India and Assam did not reflect visible effect in Assam as the state is lagging behind the pace of overall economic growth pattern of the country. With the gradual improvement of the overall political vis-à-vis law and order situation in the state after 1990s, had a positive impact on the development parameters of the economy of the state. Such changing situation resulted in the growth of hotels and lodges in the state. Moreover, since 2000 onwards increasing importance of Guwahati as regional hub of trade and commerce, and prospect of this node in the light of the proposed Look East policy opened up new vistas and 83

opportunities for the premium star category (especially 5-star and 4-star) hotels in Guwahati. Though government policy initiatives and incentives for hospitality sector is gradually becoming accommodative to meet the regional needs, entrepreneurs unawareness for such support system is found to be a matter of great concern. Field investigation in this regard reveals that out of the total 391 entrepreneurs of hotels and lodges only 39 (10 percent) are aware of the policies and incentives of the government and only 5 (1.3 percent) took the advantage of the same. For the rest 34 entrepreneurs, the reason behind unwillingness to take the advantage of the benefit of the policies are associated with apprehension of facing administrative harassment and hurdles. 4.2 INSTITUTIONAL SUPPORT FOR HOSPITALITY ENTREPRENEURS A proper planning and regulatory mechanism is the pre-requisite for the development of entrepreneurship. A nation cannot prosper economically if due importance is not given for the growth of entrepreneurship backed by the liberal policies of the government and setting up of institutions for its continuous support. The developed countries like USA, Japan and UK have seen the path of economic development through entrepreneurial activities. These countries attribute entrepreneurship as the base for long term development. Thus, there is a need and importance of setting up of institutions by the government, so that the entrepreneurs during the process of setting up and in the long run do not face any hurdles and these institutions are at help, as and when required. Thus, setting up of entrepreneurship became easy and hassle free, and it becomes one stop shop for the whole process. Keeping this in mind the Central Government has set up several institutions covering vital aspects for enterprise, viz. project development, finance, training, marketing etc. so that the entrepreneurs can set up their business in the ambit of legal framework of the country and seek help at any time from these institutions. Likewise, Government of Assam has also set up institutions in the same line of Central Government and encouraging entrepreneur to take up entrepreneurship in small, medium and heavy segment. Along with the banking sector, there are several institutions which are constantly working for the development of the hospitality sector in Assam like Assam Tourism Development Corporation (ATDC), Assam Small Industries Development Corporation Limited (ASIDC), Assam financial Corporation (AFC), Assam Industrial 84

Development Corporation (AIDC), Indian Institute of Entrepreneurship (IIE), North Eastern Development Finance Corporation (NEDFi), etc. 4.2.1 Support at state level 4.2.1.1 Assam Small Industries Development Corporation Limited (ASIDC) Assam Small Industries Development Corporation Ltd (ASIDC) was setup by the Government of Assam and incorporated on March 27,1962 under the companies Act 1956 at the instance of all India Industries Board with a authorized capital of Rs. 7,00,00000 (seven crores) to cater to the required needs of small industries in Assam. The company also undertakes a variety of activities for the benefit of entrepreneurs in the small scale industry sector such as: (i) financial assistance, (ii) consultancy for setting up of small Industries, (iii) marketing assistance, (iv) management assistance to production unit, (v) aid, assist, counsel and finance any small scale industries with capital, credit, means or resources and technical and managerial assistance for prosecution and promotion of these industries in all respects, (vi) promote, establish setup small industries in Assam and (v) provide training facilities to the entrepreneurs. ASIDC Ltd is acting as a nodal agency for helping the entrepreneurs in small scale industries sector, unveils new trends and encourages to take up new assignments or to upgrade existing small scale industries unit. Though, provisions seems to be rosy, field survey and group discussions held with the concerned authority reveals that they do not have any record of financial aid or training support to the hospitality entrepreneur; however they have organized many entrepreneurship development prospect awareness mela (fair) from time to time, like one held at Tinsukia on 6 th and 7 th of October 2010. However, lately realizing the potentiality of the hospitality sector for development of entrepreneurship and its employment prospects they have included hospitality as one of the key sector in the fair and had a good response from the prospective entrepreneurs. 4.2.1.2 Assam Industrial Development Corporation Limited (AIDC) Assam Industrial Development Corporation Ltd. was incorporated in the year 1965 under the company s act 1956 with an authorized share capital of Rs. 100.00 crores with the main objectives of (i) identification and promotion of medium and large industrial projects in Assam, (ii) implementation of the State Government packages of 85

incentives for entrepreneurs, (iii) providing financial assistance, (iv) rehabilitation and management of sick units, (v) providing technical, financial, managerial and consultancy services of entrepreneurs, (vi) development of human resource and (vii) providing infrastructural support etc. Looking at the potentiality of the hospitality sector in Assam the AIDC has started sanctioning of term loan to the hospitality sector since 1979 but stopped sanctioning loan from 1999. So far, it has sanctioned a total of 20 loans for the establishment of hotels and resorts (Table 4.1). Table 4.1: Number of hospitality projects financed by AIDC Year No. of hospitality project financed Amount (Rs.in lakh) 1983 1 56.90 1985 4 268.71 1986 2 199.50 1987 2 121.26 1988 5 423.30 1989 2 124.46 1992 1 61.75 1993 1 71.50 1995 1 71.25 1996 1 67.50 Source: AIDC office, Guwahati, 2009-10 From the interaction with the officials of the AIDC it was found that the response was very less from this sector and majority of the entrepreneurs are found to be defaulters in terms of repaying loan. Therefore the organization has stopped sanctioning loan to this sector. 4.2.1.3 Assam Financial Corporation Limited (AFC) Assam Financial Corporation was setup by the Government of Assam under the provision of the State Financial Corporation Act, 1951. Assam Financial Corporation is 86

the premier financial institution engaged in promotion of small and medium scale industries in the region with the objective of providing medium and long term credit to industrial concern for achieving a balanced growth, to catalyze investment, generate employment and widen the ownership base industry. Financial assistance to small and medium enterprises are provided by the way of term loans, direct subscription to equity debentures, guarantees, discounting of bills of exchange and seed capital assistance etc. Assam Financial Corporation has sanctioned several loans for hotels, lodges, resorts, restaurants, bakery and confectionary (Table 4.2). AFC has a scheme called general scheme (service sector) for giving the loan to the hospitality entrepreneurs. Under this scheme an entrepreneur can avail loan up to a maximum of 10 crores. For a project, AFC sanction 60-65% and rest 30-35% should be the promoter s contribution. Table 4.2: Share of hospitality project over total project sanctioned by AFC Year Total No. of No. of hospitality project % of hospitality project sanctioned project over total sanctioned project sanctioned 2004-05 2318 33 1.42 2005-06 2028 27 1.33 2006-07 2150 22 1.02 2007-08 5767 00 0.00 2008-09 685 09 1.31 2009-10 593 12 2.02 2010-11 552 14 2.54 2011-12 524 15 2.86 Source: AFC, Guwahati office, 2011-12 The entrepreneurs for the hospitality sector is also entitled for government subsidies under NEIIPP-07 for the hotel project of 2-star and above category. The subsidies can be claimed by the entrepreneurs after classification of the hotel by the competent authority through Directorate of Industries, Government of Assam. While processing for loan a number of steps are followed by AFC from assessing the viability of the project, security/mortgage, legal documentation to the disbursement of loans in installment, etc. 87

AFC also allows moratorium period up to 18 months, depending upon the type of project sanctioned. Within this period the promoter has to pay only the interest for the loan disbursed. AFC has sanctioned a number of loans in general and to hospitality entrepreneurs the corresponding share is quite unimpressive. 4.2.1.4 Assam Tourism Development Corporation Limited (ATDC) The Government of Assam has formed a company named Assam Tourism Development Corporation Ltd. on 9 th June 1988 and registered under company s act of 1956 with a share capital of Rs. 1,00,00,000/- (one crore) only. The corporation was setup with the main objective of growth and development of tourism in Assam. Assam Tourism Development Corporation is also engaged in executing several large, medium and small tourism projects of central and state government for infrastructure building as well as scheme for marketing and promotion of Assam tourism. ATDC is also acting as a catalyst to intensify private sector investment and participation in management and development of already setup projects and also for establishing new projects. For the development of tourism, ATDC has also started a scheme called Chief Minister s Assam Bikas Yojana for educated unemployed youth of the state for providing loan for tourist vehicles (small cars), hotels, lodges, restaurant, dhaba,way side amenities, etc. The scheme had started in the financial year 2008-2009. In this scheme, the maximum subsidy given to the entrepreneur is 3 lakhs and minimum subsidy given is 40 percent of the loan amount whichever is less. However, here too, share of hospitality project is quite a few in numbers (Table 4.3). Table 4.3: Share of hospitality project over total project sanctioned by ATDC Year Total no. of No. of hospitality project Share of projects sanctioned sanctioned hospitality project (%) 2008-09 310 Nil 0.00 2009-10 and 2010-11 306 9 2.94 *The year 2009-10 and 2010-11 were combined for the delivery of projects Source: ATDC Office, Guwahati. 2010-11 88

4.2.2 Organizational support at regional level 4.2.2.1 North Eastern Development Finance Corporation Limited (NEDFi) North Eastern Development Finance Corporation Ltd. (NEDFi) was incorporated under the Company s Act 1956 on August 9, 1995 with the main objective of economic development of the North East having a registered office at Guwahati, Assam. NEDFi, aimed at catalyzing the economic development of the North East of India by providing credit and other facilities for promotion, expansion and modernization of industrial enterprises in the North East Region of India. NEDFi promoted by IDBI, SIDBI, FCI, ICICI, SBI, UTI, LICI, GIC and its subsidiaries as a public finance institutions with an authorized capital of Rs. 500 crores. NEDFi delivers complete package deal to the entrepreneurs from concept to commissioning. NEDFi has several schemes for the entrepreneurs such as project finance, equipment finance, working capital term loan, etc. NEDFi has also sanctioned several loans for the establishment of hotels and resorts of 2-star and above category and are allowed subsidy to the entrepreneurs as per NEIIPP 2007 (Table 4.4). Table 4.4: Projects sanctioned by NEDFi for hospitality entrepreneurs in Assam from the financial period 2005-06 to 2010-11 Year Total projects for Assam Hospitality projects for Assam 89 Share of hospitality projects (%) 2005-06 105 10 9.52 2006-07 116 7 6.03 2007-08 69 14 20.29 2008-09 80 12 15.00 2009-10 75 12 16.00 2010-11 76 6 7.89 Source : NEDFi Head office, Guwahati, 2010-11 4.2.3 Training institute of entrepreneurship Indian Institute of Entrepreneurship (IIE) is an autonomous organization under the Ministry of Small Scale Industries and Agro and Rural Industries, Government of India. The Institute has started functioning from 1 st April 1994 at Guwahati with the

objective of creating an environment for entrepreneurship development by taking up training, research and consultancy activities for promotion of entrepreneurship. IIE organizes different types of training programmes. Some of the training programmes they arranges are promotion of new entrepreneurs, growth of existing entrepreneurs (for existing entrepreneurs in different functional areas of management and development) and creation of environment for entrepreneurship (for personnel from support organization). IIE organizes Entrepreneur s Development Programmes on regular basis for the promotion of entrepreneurs. At the instance of Ministry of Micro, Small and Medium Enterprise, IIE has started entrepreneurship skill development programmes for various sectors. Under this scheme IIE has completed a total of 18 number of hospitality skill development programmes facilitating development in the hospitality sector since financial year 2009-10 and still continuing with the programmes. The hospitality courses which IIE has started are hospitality and housekeeping management, cooking, cooking and baking, baking and confectionary, training on hospitality and restaurant management, etc. (Table 4.5). Year Table 4.5: Number of beneficiaries from hospitality programmes of IIE Total programmes Total participants Total hospitality programmes and % share Number of beneficiaries in hospitality sector and % share 2009-10 125 2595 4 (3.2) 105 (4.05) 2010-11 220 4315 6 (2.7) 170 (3.94) 2011-12 271 4507 8 (2.9) 229 (5.08) Source: IIE Guwahati, 2011-12 Duration of the courses ranges from 1 month to 3 months. There are 504 numbers of beneficiaries from these courses. The figures of hospitality training programme and beneficiaries from the sector speak about a low key status of the sector in the state. 4.2.4 Commercial banks The banks offers personalized banking and financial solutions to the clients in the retail and corporate banking arena through its large network of branches. There are 90

nationalized bank, State Government undertaking banks and Co-operative banks etc. Most of the banks have their own scheme to suit the needs of the entrepreneurs. An investigation of their financial support to the hospitality sector in the capital city of Guwahati reveals that State Bank of India, small and medium enterprise credit cell, Silpukhuri, Guwahati branch has sanctioned an amount of 103.85 lakhs for 10 projects as term loan to the hospitality entrepreneurs for hotel, lodge and restaurant during the period from 2005 to 2008. On interaction with the concerned authority it came to light that they do not have special scheme for hospitality entrepreneurs but they sanction term loans to the entrepreneurs. On the other hand the response from these hospitality sectors is much less in comparison to the other sectors of economy. 4.2.5 Hospitality industry associations There are different associations at national, regional and state level who are constantly working to promote and protect the interest of entrepreneurs. Some of the associations who are working for the benefit of hospitality sector are as follows: Federation of Hotel Restaurant Association of India, Federation of Hotel Restaurant Association of Eastern India, Greater Guwahati Hotel Workers Union, etc. 4.2.5.1 Federation of Hotel and Restaurant Association of India (FHRAI) Federation of Hotel & Restaurant Associations of India provides an interface between the hospitality industry, political leadership, academics, international associations and other stake holders of the sector. FHRAI is committed to promote and protect the interests of the Hospitality Industry by actively seeking better privileges and more concessions for the Industry. FHRAI always kept abreast with the latest trade information and trends, statistical analysis and reports on various topics that have a direct impact on the Industry, government notifications and circulars. FHRAI helps the Hospitality Industry to grow, prosper and keep in pace with the development hotel and restaurant in the international scenario. 4.2.5.2 Hotel and Restaurant Association of Eastern India Hotel and restaurant association of eastern India is one of the regional associates of Federation of hotel and restaurant association of India and is actively working in sustaining the mission of the FHRAI in eastern region of India having the activities of 91

(i) interaction with members, (ii) dissemination of information, (iii) circulation of newsletters and other literature concerning the hospitality industry, (iv) organizing conventions, seminars, and symposia, (v) conducting research on hotel and restaurant industry and updating members on latest developments, (vi) training of human resource in different spheres of hotel and restaurant activity, (vii) taking legal action in favour of members when member s interest and thereby the interest of the Industry is at stake, (viii) help in expansion and development of existing projects and (ix) being the authentic voice of the hospitality industry and lobbying for all relevant matters before the state and central government 4.3 PRESENT SCENARIO OF ACCOMMODATION SECTOR IN ASSAM In order to access the present status of accommodation sector in the state, door to door survey was carried out in hotels and lodges, of the selected nodes, viz Dhubri, Barpeta Road, Guwahati, Tezpur, Kaziranga, Sivsagar, Dibrugarh, Tinsukia and Silchar during the period 2008-09 (Fig 4.1).The survey covered all categories of accommodation units including government recognized ones. Fig 4.1: Sample site of the study area. 92

Though there are different categories of hotels and lodges, accommodation units were grouped into three categories based on the field experience. They are categorized as economy, budget, and luxury category. Such grouping has been done on the basis of the standard and service quality of those units. The economy category units are generally cheaper (tariff < Rs 500 per room per night) and meet the demand of middle and lower income group of people. The budget category units are fairly good in terms of Indian standard with facilities like partial air conditioning, television, telephone, room service etc. These accommodation units meet the demand of upper middle classes which ranges between Rs 500 to Rs 1000 per room per night. However the luxury category accommodation units are the best in terms of pleasant environments, appealing facades, air conditioning, room service, bar, foreign currency exchange facilities, travel agency, valet service etc. to meet the demands of elite and upper class tourists. They offer comfortable and pleasant stay for well-off domestic and foreign tourist at comparatively high price. The analysis of the accommodation units in terms of its status and prospects of different nodes of Assam are as follows: 4.3.1 Dhubri Dhubri district is considered as the gateway of western Assam. Dhubri town is a small old town on the bank of the Brahmaputra and Gadadhar river. Dhubri is the administrative headquarter of District Dhubri. Dhubri possesses a rich archaeological and cultural heritage from the ancient time and one of the important administrative and commercial nodes of the state developed in the British colonial period. The material evidences of rich cultural heritage of Dhubri district are marked by the existence of heritage buildings including temples, shrines and some archaeological remains. Gurudwara, Panchpir Dargaha, the mosque of Rangamati, the oldest mosque of Assam, Mahamaya Dham, Netai Dhubuni Ghat, etc. are some of the attractions for strangers in the district. Dhubri district is also bestowed with attractive scenic and natural sites like Chakrachilla wildlife sanctuary. The palaces of jaminders of Gauripur, located at a distance of about 9 km from the Dhubri town attract the people for their unique structures, architecture and historic importance. Similar palaces are also found in Bilasipara and its nearby areas. The hotels and lodges of Dhubri also acts as the transit point to the places of Mankachhar, Phulbari etc. 93