FDI Trends in India’s Hospitality Sector: UAE Investments in Luxury and Wellness Tourism

The hospitality industry in India is one of the most lucrative sectors of the Indian economy and huge scope of growth arising from India’s rich cultural diversity aims to be a lucrative target foreign investors. India’s rich cultural heritage coupled with a growing middle-class and has led to a rapid growth in tourism and has certainly not escaped the attention of foreign investors.

The United Arab Emirates (UAE) has established itself as a strong contender among the participants and has moved forward in investing in India's diverse tourism market with its luxury hospitality and wellness expertise.

Navigating the maze of India's FDI regulations and policies might appear complicated but with the right support from organizations such as Ahlawat & Associates, foreign investors from the UAE will find it easy to invest in India and nurture their business most effectively.

Current Trends In India’s Hospitality Sector

The hospitality industry in India presents itself as one of the key industries contributing to the GDP of the country, accounting for roughly around 7% of the economy’s output. This is bound to grow owing to an expected increase in international tourists, and domestic travel as well as an increase in income levels of the local population.

The post-COVID recovery phase has contributed largely towards the modification in the hospitality sector. People nowadays prefer personalized and safety-centered travel experiences. Such preferences give rise to a demand for tourism products such as wellness tourism, eco-tourism, boutique stays, and luxury retreats.

Luxury Stays

There is a concerted boom in the demand for luxury tourist accommodations in India, with the construction of luxury hotels, conversion of whole or parts of heritage properties into luxury tourist accommodations, and are responsible for the growth in the demand for luxury touristic ancillary experiences which are sought by people residing in such properties. Royal palaces converted into ultra-luxury hotels in various parts of the country such as Rajasthan, Madhya Pradesh, Telangana, etc. are highly sought after by tourists looking for a luxury experiences in India.

Health and Wellness

India is a worldwide destination for holistic treatments and practices such as Ayurveda, yoga, and naturopathy. Wellness tourism destinations in India, often centered in Kerala is expected to reach USD 20.68 billion in 2025 and grow at a CAGR of 6.45% to reach USD 28.27 billion by 2030.

FDI Policies in India’s Hospitality Sector

The Indian government has undertaken several reforms of foreign investment regulations that have been aimed at promoting investments in the tourism and hospitality sector. The policies are meant for easing the procedures, reducing compliances, and have the aim to make the tourism and hospitality industry an attractive sector to foreign investment overall.

1. FDI is permitted up to 100% using the Automatic Route

Under existing foreign investment regulations, India allows hundred percent (100%) foreign investments with no restrictions on entry in the tourism and hospitality sector. This provision makes it easier for foreign investors including investors from the UAE to invest in the hospitality sector as there is no requirement for prior approval from the relevant government authorities.

2. Infrastructure Development Schemes

Initiatives like “Swadesh Darshan” (theme-based tourism circuit developments) and “PRASHAD” (rejuvenation of pilgrimage towns) seek to increase the tourism infrastructure throughout India from one point to another based on the focal point of each of these initiatives. These schemes coupled with the current government initiatives for general development of various infrastructure modes in India offer further opportunities for investment from foreign investors in the UAE in conjunction to be a part of the infrastructure development wave in India.

3. India – UAE Trade Relations

The Comprehensive Economic Partnership Agreement (CEPA) signed between India and the UAE aims to further cement the growing economic relationship between the two countries. The CEPA provisions aims to further simplify foreign investment procedures and reduce various tariff lines, thereby focusing on improving underlying conditions for boosting bilateral trade and investments in the hospitality and tourism industries between India and the UAE.

These policies provide evidence of genuine efforts from the Indian government to promote foreign investment and make India one of the most suitable countries for foreign investors including investors from the UAE to invest in.

Investment Avenues for UAE Entrepreneurs in Luxury and Wellness Tourism In India

Due to the growth of wellness and luxury tourism in India, there is a great demand for investment from  foreign investors, more so than before in the tourism sector. Primary avenues for routing foreign investment in the tourism sector in India are:

Investment In Luxury Accommodations

There is an increasing demand for extravagant places to stay from global and local tourists due to the increase in high-end tourism. UAE investors can utilize their knowledge in the creation of world-class resorts to come together with Indian builders to develop five-star hotels in Udaipur, Jaipur, and Goa.

Ayurvedic Centre And Spa Facilities

India is one of the most sought-after destinations when it comes to wellness tourism. Foreign investors have an opportunity to invest in the development of upscale wellness centers in Kerala and Uttarakhand, to ride this wave.

Eco-Tourism Startups

As environmentally conscious travel becomes more popular across the globe, foreign investors can ride this wave in India by investing in the development of eco-tourism destinations in target regions such as Himachal Pradesh, Sikkim, Rajasthan the Western Ghats to develop hotspots for ecologically conscious tourists.

Collaboration With Indian Service Providers

Partnership with established Indian wellness and hospitality service providers can assist UAE investors rapidly establish operations in India’s tourism industry.

Navigating Compliance and Licensing in India’s Hospitality Sector

In India, complying with the requisite laws and licensing requirements within the hospitality industry can be a tedious and challenging task. The following include considerations that have to be made while complying with the aforementioned.

1. Acquisition of land in India for hospitality projects is zone specific and is subjected to regulations that can be state specific. Careful observation of zoning and other building restrictions is crucial, especially for eco-tourism or wellness projects that can be built in sensitive environmental areas.

2. If one is planning on undertaking construction projects in sensitive regions, one needs to start the application for approvals beforehand as it does take time.

3. Applying for requisite licenses and registrations for undertaking hospitality and tourism related projects is a key part of the establishment of projects. For the establishment of an indicative list of licenses any tourism related business needs to apply for are:

• Business License
• Labour licenses and certifications
• Building permit from the local authorities
• FSSAI license for operating a food business.
• Bar license
• GST registration

Ahlawat & Associates can assist a foreign investors investor in obtaining all such licenses and registrations which will help them gain legal entry into the hospitality industry of India.

Conclusion

India’s hospitality market is witnessing unprecedented growth that is further fueled by growing demand for luxury tourism products. This trend offers an attractive opportunities for foreign investors including investors based out of the UAE to enter one of the fastest growing  markets worldwide.

However, doing business in India comes with a necessity to adhere to certain regulatory and compliance requirements where foreign investors are liable to require local assistance. This is where consultants such as Ahlawat & Associates comes in handy with domain-level experts who can help foreign investors in strategizing their investment strategies keeping in mind key aspects such as FDI regulations, licensing requirements, and local market conditions, to ensure that the investment turns out to be profitable.

FAQs

1.       What is the FDI policy for hospitality sector in India?

FDI is allowed under the automatic route for tourism and hospitality projects without any ownership restrictions.

2.       Where are the best places to invest in luxury and wellness tourism in India?

Kerala, Rajasthan, Uttarakhand, Goa, Himachal Pradesh are the most popular destinations for investment in luxury tourism projects.

3.       What role does Ahlawat & Associates play in facilitating FDI investments?

Ahlawat & Associates provides legal advisory services, compliance guidance, investment structuring strategies and guidance seeking regulatory approvals.

4.       What are the tax implications for UAE investors in India’s hospitality sector?

Investors are subject to India’s tax laws at various levels such as payment of GST on the establishment and operations of tourism projects, payment of corporate taxes, etc.