Hotel Valuation Services (HVS) was founded in 1980 by Steve Rushmore. It is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming and leisure industries. Rushmore began his career as a consultant in the hospitality division of a prominent New York City real estate firm. He quickly realised that a limited body of knowledge was available to assess the value of hotels. He founded HVS to fill this perceived gap.
The HVS method of providing an economic study and appraisal for hotels and motels immediately became the industry standard. HVS is focused on the hotel, restaurant, timeshare, gaming and leisure industries. The company has more than 300 consultants offering specialized services through its network of 25 offices worldwide.
Studies conducted by HVS indicate that 2010 is going to be a challenging year for the Indian hospitality industry.

Challenges for the Hospitality Sector
The tourism industry is highly susceptible to changes in the macro-environment. The aviation and hospitality sectors are among the first to get affected by an adverse environment and also the last to recuperate.
The main challenges faced by the hospitality sector in India include lack of infrastructure and facilities, lack of human resources and training, the hotel rating system not being at par with international standards, intense competition from global players and multiplicity of taxes.

HVS Recommendations
HVS has made the following recommendation in order to address the challenges faced by the hotel industry:
• Grant hotels industry status across India

• Include tourism as a subject in the Concurrent List of the Constitution of India

• Grant hotels infrastructure status under Sec 80-IA of IT Act

• Impose a single uniform luxury tax, based on the actual room tariff only, across all Indian states

• Impose uniform tax rates on rooms, food and beverages, and liquor across the country

• Give incentives, in the form of tax breaks, to re-invested capital in the hotel industry

• Extend the benefits of Sec 80-ID to other parts of India

• Develop a more scientific rating system to truly benchmark hotel quality

Hotel Rating Process
Various approaches are used across the globe to classify hotels. The most common approaches followed are:
Registration: This involves a basic level listing of properties that meet agreed minimum standards.
Classification: Hotels are classified into various categories based on the amenities offered.
All establishments have to follow certain minimum standards.
Grading: Hotels are graded according to the quality of services delivered to customers.
Assessment of this nature is highly complex and time consuming.

Hotel Rating System in India
India has been using the “Classification” system with mixed results for over four decades.
HVS recommends that the present rating system in India should be upgraded to the “Grading”
system to enable it to employ a more discretionary approach to the process. Hotels, motels and other lodging in India are inspected and categorized according to their products and services by the Hotel and Restaurant Approval and Classification Committee (HRACC), a body instituted by the Ministry of Tourism. However, the checklist used by HRACC has some serious shortcomings. The minimum standards are too weak and lenient. Hotels that do not adhere to minimum standards are penalized. However, benefits are not offered to hotels that offer services above the minimum standards. The checklist focuses on physical infrastructure alone and is not very effective in assessing the quality of services.
The present system needs a complete overhaul in order to remain relevant in the dynamic market scenario. Safety and hygiene should be the first parameters in the classification process.
The government should focus on the safety and hygiene parameters than on the commercial aspects of classification. The HRACC classification should be revamped so that it provides a more accurate indication of a hotel’s quality and services.

Question For Discussion
1. What are the challenges facing the Indian hospitality industry?
2. What is HVS? What are the recommendations of HVS mentioned in this case study?
3. What are the limitations of the present hotel rating system in India?
4. If you are hired as the consultant, what measures do you suggest to improve the present hotel rating system in India?