Hotels set for a strong 2HFY26: Indian Hotels, Lemon Tree strong buys

India's hotel sector is currently experiencing a robust resurgence, signalling a strong recovery and future growth trajectory. This acceleration, particularly noted in the first half of Fiscal Year 2026 (1HFY26) with projections for an even stronger second half (2HFY26), is a critical indicator of broader economic health and sectoral resilience. Understanding this trend requires delving into its background, key drivers, implications, and policy framework.

**Background Context and What Happened:**

Before the COVID-19 pandemic, India's hospitality sector was on an upward curve, driven by increasing domestic and international tourism, a growing middle class, and rising disposable incomes. However, the pandemic brought the sector to a grinding halt, with travel restrictions, lockdowns, and economic uncertainties leading to unprecedented losses, job cuts, and low occupancies. The recovery began tentatively in late 2021 and gained momentum through 2022 and 2023, primarily fueled by domestic tourism and 'revenge travel'.

The current acceleration is not just a rebound but a sustained growth phase. The article highlights that this growth is broad-based, encompassing business travel, leisure tourism, the lucrative weddings segment, and Meetings, Incentives, Conferences, and Exhibitions (MICE). This diversification of demand sources makes the recovery more resilient. Strong room rates, which had fallen significantly during the pandemic, have now stabilised and even surpassed pre-pandemic levels in many markets, indicating healthy demand and pricing power for hotels. Stable occupancies further underscore this demand, suggesting that hotels are filling their rooms consistently. The optimistic outlook for 2HFY26 is underpinned by two crucial factors: ongoing new infrastructure development and a rich event calendar, including major sporting events, cultural festivals, and business conferences, which naturally boost travel and accommodation needs.

**Key Stakeholders Involved:**

Several entities play crucial roles in this sector's dynamics. **Hotel companies** like Indian Hotels Company Ltd (IHCL), Lemon Tree Hotels, EIH Ltd (Oberoi Group), and various international chains operating in India (Marriott, Hilton, Accor) are direct beneficiaries and drivers of this growth. Their investment decisions, expansion plans, and service quality directly impact the sector. The **Government of India**, particularly the Ministry of Tourism, and various **state governments**, are pivotal stakeholders. They formulate policies, provide incentives, develop tourism infrastructure, promote destinations (e.g., through campaigns like 'Dekho Apna Desh'), and facilitate ease of travel. **Tourists and travellers**, both domestic and international, are the ultimate consumers driving demand. **Event organizers** for weddings, conferences, and exhibitions are crucial for the MICE segment. Finally, **infrastructure developers** (for airports, roads, convention centres) and related service providers (airlines, tour operators) form the ecosystem that supports the hotel sector.

**Significance for India:**

This strong performance of the hotel sector carries immense significance for India's economy and society. Economically, the hospitality and tourism sector is a significant contributor to India's **Gross Domestic Product (GDP)** and a major source of **foreign exchange earnings**, especially from international tourists. It is also a highly **employment-intensive sector**, generating direct and indirect jobs across various skill levels, from management to housekeeping, boosting livelihoods and reducing unemployment. The growth aligns with the 'Make in India' and 'Vocal for Local' initiatives by promoting domestic tourism and local businesses. Socially, a thriving tourism sector promotes **cultural exchange**, showcases India's rich heritage, and fosters national integration through domestic travel. Politically, tourism can serve as a tool for **soft power diplomacy**, enhancing India's global image and fostering goodwill.

**Historical Context and Future Implications:**

India's tourism policy has evolved significantly. Early initiatives focused on developing basic infrastructure and promoting key cultural sites. Post-liberalisation in the 1990s, private investment surged. The **National Tourism Policy, 2002** (though a new one is under review) aimed at positioning India as a global tourism destination, focusing on sustainable tourism and public-private partnerships. Recent schemes like **Swadesh Darshan** (for integrated development of theme-based tourist circuits) and **PRASAD** (Pilgrimage Rejuvenation and Spiritual, Heritage Augmentation Drive) reflect the government's continued focus on diverse tourism segments. The 'Dekho Apna Desh' initiative launched in 2020 further underscored the importance of domestic tourism.

Looking ahead, the sector is poised for continued expansion. Increased government spending on infrastructure, such as new airports under the **UDAN scheme** and improved road networks under the **National Infrastructure Pipeline**, will further enhance connectivity and accessibility to tourist destinations. India's growing middle class and aspirational youth will continue to fuel domestic tourism. However, challenges remain, including ensuring sustainable tourism practices, addressing potential skilled labor shortages, and managing competition. The sector's growth will likely lead to more investment, diverse offerings (e.g., eco-tourism, wellness tourism), and greater integration with the global travel market.

**Related Constitutional Articles, Acts, or Policies:**

While tourism is primarily a **State Subject** under **Entry 14 of the State List** in the **Seventh Schedule** of the Constitution, the Union Government plays a significant role in policy formulation, promotion, and infrastructure development. The **Ministry of Tourism** is the nodal agency at the central level. Key policies and initiatives include the aforementioned Swadesh Darshan and PRASAD schemes. The **Goods and Services Tax (GST)** regime, implemented in 2017, significantly impacted the hospitality sector by subsuming various indirect taxes, aiming for a more streamlined tax structure, though initial rates were a concern for the industry. Efforts under the **Ease of Doing Business** framework also benefit hotel investments. The **Companies Act, 2013**, governs the incorporation and functioning of hotel companies. The overall economic policies, including those related to foreign direct investment (FDI) in the sector, also play a crucial role.