Recently, the Haryana Urban Development Authority (HUDA), Haryana state government body responsible for the overall development of the town sold a five-acre plot for a five-star luxury hotel in Information Technology-Business Process Outsourcing hub Gurgaon that adjoins Delhi, national capital of India for more than $50 million (Rs.250 crore), bringing to focus India’s fast growing hospitality sector. It is estimated that global hospitality companies will invest more than $1 billion (Rs.4100 crore) in new projects and expansion in the next two years due to a huge rise in business and leisure travel.

Overall, it is estimated that more than $2 billion is likely to be pumped during the next three years in the hospitality sector. Many private equity funds are allocating as much as 50% of their planned real estate investments into the sector, as hospitality remains highly under serviced area with a huge demand supply imbalance.

Shanghai boasts of 135,000 hotel rooms against a mere 105,000 rooms in the whole of India, with only a quarter of these in the branded segment, according to a recent industry study by the Federation of Indian Chambers of Commerce & Industry (FICCI), an association of business organisations in India. Singapore, a country smaller than the size of Delhi, has nearly half of India's total room capacity with the figure standing at 48,000.

The study noted that as many as 40 brands are expected to set-up budget hotels in the next five to seven years in India. However, it warned that in absence of a single window clearance for these projects, uncontrolled land prices and inconsistent taxation norms, India could lose out to competing neighbours.

The shortage in rooms has resulted in prices in India skyrocketing with hotels charging rates that are among the highest in the world. A study by the travel consultancy Business Management International found that the average room tariff in hotels in Bangalore, the capital city of south Indian state of Karnataka is the third highest (after Moscow and Rome) in the world.

Bangalore accounts for the majority of foreign business travellers visiting India annually, 51% compared with 35% to Mumbai and 26% to Delhi. Infosys Technologies Ltd, the second largest IT services company of India and Wipro Ltd, the third largest IT company have set up their own guest accommodations with five star facilities in Bangalore in order to avoid the risk of non-availability of rooms and high costs.

Some of the problems look to be addressed as elaborate plans are being put in place. Indian Hotels The Indian Hotels Company Ltd, a part of the Tata Group that operates Taj Hotels chain of luxury hotels; Hotel Leela Venture Ltd, an Indian hotel company that owns four deluxe hotel in the cities of Mumbai, Bangalore, Kovalam and Goa; EIH Associated Hotels Ltd that operates Oberoi’s brand of luxury hotels, Kamat Hotels Ltd, group of three star hotels; Royal Orchid Hotels and other leading chains are likely to roll out a room inventory of around 6,500.

Hotel Leela Ventures is investing around $281 million (Rs. 1,265 crore), Indian Hotels will invest $277 million (Rs.1,250 crore), EIH plans to invest $255 million (Rs.1,150 crore), while Kamat Hotels will invest $81 million (Rs. 365 crore) and Royal Orchid $111 million (Rs. 500 crore). A total of 60 new properties across categories are likely to come up in India.

Global hospitality companies such as InterContinental Hotels Group, that operates more than 200 hotels and resorts in 75 countries; Starwood Hotels & Resorts Worldwide, Inc that manages or franchises more than 860 hotels in 95 countries, Hilton Hotels Corporation that has a chain of 229 hotels across the world; Accor, the French multi-format chain of hotels; Carlson Hotels Worldwide, one of the world's leading hotel companies with five brands spanning luxury to economy are all stepping up their offerings in the Indian market given the growing demand.

Hilton has joined hands with India’s largest real-estate developer DLF Ltd to set up 75 hotels and serviced apartments in the next seven years. The joint venture is valued at $550 million. Accor has formed a joint-venture with Emaar-MGF Land Private Limited, a joint venture company formed by Emaar Properties PJSC - the world’s largest listed real estate company, and MGF Developments Limited of India to bring Formula-1 budget hotels to India. Wyndham Hotels & Resorts, the U.S. based luxury hotel chain has teamed up with Bangalore-based Royal Orchid Hotels to develop 10 Ramada hotels that will have at least 1,000 rooms.

This year’s budget has provided a further fillip due to the tax holiday announced by India’s Finance Minister P. Chidambaram keeping in mind the Commonwealth Games in Delhi. But, there is a long way to go. According to estimates, India needs another 125,000 hotel rooms by 2010 to meet the surging demand, particularly in the upper and middle ranges.

Even as international tourist arrivals in India grew last year by 13% to a record level of 4.3 million, the country's tourism was hampered by inadequate airport and road infrastructure and lack of adequate rooms, according to a report recently published by the Pacific Area Travel Association (PATA) an association serving tourist offices, hotels, and travel-related companies throughout the Asia Pacific region.