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Difficult Regulatory Environment for Hotels in India

There are various difficulties regarding the regulatory environment while embarking on a new hotel project in India. In my article, I attempt to give a brief outlook of the whole process to get licenses and meet regulations. I will also highlight the major challenges to do the same. 

Land Acquisitions stage

The first stage while developing a hotel project is land acquisition stage. While looking at acquisitions of plots for hotel projects in India there are mixed difficulties in various states. There is a big flaw in our judiciary system and it is not the same across the country. Since hotels are built for commercial use (status) it is not legally permissible for companies to buy agriculture land as the regulations say that only farmers can buy agriculture land, and usually big plots of land have agricultural use.

However in a state like Goa, the law is complete opposite, there is no such rule. Companies are allowed to buy agriculture land in the state. In Himachal Pradesh no outsider has the right to purchase land parcels, as according to law only state residents have the right to purchase land.

The Coastal Regulation Zone (CRZ) rules also vary from state to state and some of them are not very practical. For example, in the GR’s that has been passed for a 10 meter road for beach properties - one will find that if there are 2 hotels then according to the rule, both the hotels have to leave 10 meter excess road which makes it 20 meters. Holistically, that makes it a 60 meter wide road for beach excess!

I feel that the entire GR and Notifications require a thorough revamp.

In some locations, acquisitions never happen because of the level of corruption involved in the process. There is an extremely high level of corruption in Village Panchayat, Town & Country Planning, CRZ authorities and local police stations. The demands of these statutory authorities are unreasonable which forces the buyers to abandon the project completely. In few states the village panchayats have been given lot of powers and the other departments never move ahead unless the NOC is obtained from panchayats. The members of panchayat (Panch Members) form a majority and the Sarpanch has to pass the resolution and then orders. These members are highly corrupt and extract a lot of money especially from Hotel developers.

Getting Approvals and NOC’s

This stage is most critical and one only finds bottle necks while dealing with the statutory authorities. In this stage, the hotelier has to go to various departments for Approvals and NOC’s. There are more than 100 licenses and approvals that one needs to get during this time. One of the biggest hurdles to do the same are -

1. Our Indian Judiciary system still comprises of very archaic laws.  Also there is no limit for Red tape that’s involved, so one can never really predict where a file might get blocked or a project getting stalled. This leads to losing a lot of time, and losing time means losing money.

2. One of the most stringent and difficult bodies to take NOC’s and approvals from are Pollution Board, Environment,  Forest & Agriculture Ministry, CRZ authorities, Air Ports Authority, T&C Planning, Direct & Indirect Taxes, Local Municipal Authorities & Village Panchayat, Police Regulations, Broadcasts, and Foreign Trade Policy. Last but not the least the CFO’s NOC to comply with fire norms has become very important for hotel developers.

Important licenses & NOC’s

  • Building Permit
  • Fire Safety Permit
  • Police License For Hotel
  • Health Trade License
  • Business Registration
  • PF Registration
  • Bar License
  • Service Tax Registration
  • VAT Registration

Many of the licenses and registrations must be obtained prior to starting the hotel and renewed while the hotel is operational. Further, most licenses require the hotel to meet certain rules for maintaining validity. Therefore, it is important for entrepreneurs in the hotel industry to be aware of these licenses and registrations – to operate a hotel business smoothly.

A lot of the license requirements depend on the type of the hotel, star rating, amenities and location of the hotel. Further, the rules and regulations to obtain license for hotel industry differs according to the states.

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