SUPPLY AND DEMAND
It's been a few days now in India for me, and there's no question that economic activity here is booming. Nowhere is it more evident anecdotally than the crowded lobbies of the various hotels I've visited here in Mumbai the last few days.
Which brings me to this timely article in the New York Times earlier this week on the shortage of hotel rooms across India. I had no idea of the magnitude of the shortage until I saw the numbers. Some relevant snippets:
"Demand for hotel rooms is soaring in India as its economy blossoms. Foreigners are flooding in to cut deals, attend conferences or just discover the caves of Ajanta and the sands of Rajasthan. The rise of low-fare airlines is also bringing domestic air travel within reach of more Indians, who, until recently, had little chance of ever boarding a jet.
Yet for all those travelers, India offers only 110,000 hotel rooms. China has 10 times as many, and the United States 40 times as many. The New York metropolitan region alone has about as many rooms as all of India."
I read that last bit twice just to make sure I wasn't missing something. It continues:
"Compare India, a country of 1.1 billion people, to New York, a city of 8 million: New York attracted 6.8 million foreign tourists in 2005; India attracted 3.9 million."
This shortage of course is reflected in the prices:
"The high prices are all the more striking in a low-wage country like India. At a $500 rack rate for the five-star rooms favored by business travelers, a hotel employee earning minimum wage here would have to work about a year to pay for one night’s stay, versus about two and a half weeks’ work for an American earning minimum wage.
And even though the Chinese earn twice as much as Indians on average, India has the more expensive rooms, according to a recent edition of Travel Business Analyst, an industry newsletter. Comparing rooms of similar quality, suitable for business travelers, a room in Delhi cost $187 on average this year, versus $122 in Beijing; a room in Mumbai was $178, versus $150 in Shanghai."
The cause of this shortage is more nuanced than one might imagine:
"Some hotel executives blame the government for sticking to decades-old laws that limit the amount of land for sale and drive up prices.
Because of the Indian real estate boom, land is so expensive that the Taj group of hotels, a chain with 7,000 rooms across India, has found that the reserve price at land auctions makes building a hotel not financially viable, said Ajoy Misra..."
And the solutions for this hotel crisis may come from some not so obvious places, where some are proposing:
"... a 10-year tax rebate for new budget hotels, as well as encouraging Indian Railways to give up some of its vast land holdings for track-side hotels. To avoid the spiraling auction prices, the government may soon purchase land and lease it out cheaply to hotels."
In the meantime, I'll be thankful I have a room over my head here in Mumbai over New Year's Eve. As it is, my wife and I were unable to join some friends in Kerala (in southern India) for the big night tonight because, you guessed it, there were no rooms to be had in the resort area they're visiting.
Wish you all a Happy and Prosperous New Year, where you are!