Will India’s Hospitality Sector Achieve 8% Growth in FY26?

New Delhi, June 9 (NationPress) The hospitality industry in India is projected to experience a revenue increase of 6-8 percent in FY2026, following three years of remarkable double-digit growth spanning FY2023 to FY2025, as indicated by an ICRA report published on Monday.

According to ICRA, the occupancy rates for premium hotels across India are expected to stabilize at 72-74 percent in FY2026, which is an improvement over the 70-72 percent rates seen in FY2024 and FY2025. The average room rates (ARRs) for premium accommodations are anticipated to climb to Rs 8,200-8,500 in FY2026, compared to a healthy Rs 8,000-8,200 in FY2025, due to a lag in supply growth and ongoing renovations in several hotels.

Jitin Makkar, Senior Vice President at ICRA Limited, remarked: "After three years of robust demand driven by favorable domestic leisure travel, MICE events including weddings, and business travel, the growth in India’s hospitality sector is projected to stabilize at 6-8 percent year-on-year in FY2026."

"Though the terror attacks in April 2025 and subsequent uncertainties in North and West India in May 2025 caused a spike in travel cancellations, this impact has been largely temporary. Recent weeks have shown a healthy recovery in sentiment as the conflict has eased," he added.

While foreign tourist arrivals (FTAs) to India may remain subdued in the upcoming months due to the aftermath of the terror attacks, a gradual recovery is expected afterward. Domestic tourism, however, has been the primary driver of demand and is anticipated to continue being significant in the near future, according to the report.

Factors such as enhanced infrastructure, improved air connectivity, favorable demographics, and the predicted increase in large-scale MICE events—with several new convention centers having opened recently—will support growth in the medium term, the report states.

The sample set analyzed by ICRA, which includes 13 large hotel companies, is projected to report consistent operating margins of 34-36 percent for FY2026, despite lower revenue growth. These margins will be upheld by cost rationalization and asset-light expansions recently undertaken.

However, results will vary across the sample, influenced by renovations and rising employee expenses due to increasing demand. The de-leveraging of balance sheets has led to reduced interest costs, likely aiding net margins and enhancing credit metrics, as noted in the report.

“The demand surge over recent years led to more supply announcements and the resumption of deferred projects in the last 24-30 months. However, supply growth is expected to lag behind demand for the next 12-18 months.”

ICRA’s database of premium room inventory across 12 key cities indicates a CAGR of 4.5-5 percent in room inventory additions during FY2023-FY2026. Much of the new supply will come from management contracts and operating leases. Current land availability issues are a significant constraint on supply growth in premium micro-markets in metropolitan areas, with new premium hotel additions primarily resulting from rebranding or property degradation, while greenfield projects are mostly being initiated in suburbs," Makkar concluded.