Be it a business traveller or a honeymoon couple, everyone today wants to stay in a good quality hotel, but at a reasonable rate. And with the emergence of a wide range of budget hotels, India's hospitality industry is all set to roll.

According to industry experts, the demand-supply gap of budget hotel rooms in India is currently more than 50,000. Hence they feel there is huge potential in this segment.

Budget hotels provide all the basic needs of a traveller, except for certain luxury features such as a swimming pool or a 24x7 coffee shop, and they all maintain global standards of quality with room tariffs ranging between $22 and $100 (Rs 975 - Rs 4,430)

Bigger players such as the state-run India Tourism Development Corp (ITDC), as also the Taj Group of Hotels (owned by the Tatas) and Welcome Group's ITC have also entered the segment realising its enormous business potential.

"This market would grow at a smart pace given the economic growth across the country, growth in domestic and international tourism aided by low-cost airlines and better rail / road connectivity and many more new economic centres like SEZs (special economic zones) coming up," said Prabhat Pani, chief executive of Roots Corp.

Roots Corp is a subsidiary of Taj Hotels that operates the Ginger brand of hotels.
According to Pani, the mid-segment hotels have scope for several players, as the market in India right now is about two-thirds of the total market.

Amongst the smaller chains, Lemon Tree Hotels have ventured into the budget segment with its Red Fox brand. The Kotak Realty Fund, part of the Kotak Mahindra group, has invested over $7 million in the brand.
"The market is enormous and there's growing demand for such hotels in India, especially at a time when the 5-star hotels are reaching saturation," said Patu Keswani, chairman and managing director, Lemon Tree Hotels.

However, these hotels have very little or no visibility in the metros and are concentrated mostly in cities such as Pune (Maharashtra), Bhubaneswar (Orissa), Jaipur (Rajasthan) and Mohali near Chandigarh.
Experts believe high cost of land in cities like Mumbai, New Delhi and Bangalore acts as an obstacle for setting up mid-scale hotels.

"The main challenge is the sky-rocketing land prices," said Keswani, who plans to open nine Red Fox hotels by 2007 in tier-II cities.

International majors are also eyeing this segment. They include Accor, one of Europe's leading hotel chains, that has tied up with InterGlobe Group. It has promoted the low-cost IndiGo Airline. Others, such as Dubai-based Emaar Properties, have tied up with Indian real estate major DLF for entering this segment.

A London-based international conglomerate - Dawnay Day - plans to invest $200 million for establishing its footprint in India's hospitality sector.

"This segment caters mostly to the middle class, which means there is plenty of opportunity here. Hence it's natural for the big international players to be bullish," opined Sanjay Dutt, deputy managing director of real estate consultancy firm Cushman & Wakefield India.

According to Amitabh Kant, joint secretary in the ministry of tourism and culture, "the size of domestic tourism is currently $390 million growing at a rate of 12 percent, which is going to be 15 percent within the next five years, so I can see a tremendous transformational change happening in India's hospitality sector."
"The demand for hotel rooms will also grow at a massive rate as the arrival of foreign tourists is also expected to see significant increase," Kant said.

Industry insiders say budget hotels will also come up within mall complexes, which will have an added advantage of retail outlets attached to them.