India’s Hospitality Industry on a Growth Spree, Set to Cross ₹1.1 Trillion by FY2027
/India’s hospitality sector has rebounded strongly from the pandemic-era slowdown and is now positioned for sustained growth, according to the latest Rubix Sectoral Report on Hospitality. The report projects that the industry will grow at a 10.5% compound annual growth rate (CAGR) to reach ₹1.106 trillion by FY2027, up from ₹820 billion in FY2024.
The revival has been broad-based, driven by domestic demand, rising international tourist arrivals, and a resurgence in business and MICE (Meetings, Incentives, Conferences, and Exhibitions) travel. Notably, the sector’s occupancy rate, which had plummeted to 35% during the pandemic, has recovered to 68% in FY2024 and is expected to rise to 73% by FY2027.
Supply Trails Demand, Driving Room Rates and Revenues
While demand is projected to grow at 10.5% annually, supply is lagging slightly behind at an estimated 8.6% CAGR, leading to improved pricing power across categories. The Average Daily Rate (ADR) rose to ₹7,500 in FY2024 and is expected to reach ₹8,900 by FY2027. Correspondingly, Revenue per Available Room (RevPAR) touched a decade-high of ₹5,439 and is forecasted to cross ₹6,497 over the next three years.
This demand-supply gap is expected to continue fueling profitability, especially in the branded and organised hotel segment, which has been quick to capitalise on rising occupancy and premiumisation trends.
Tier II & III Cities Emerge as Growth Hubs
While metro cities such as Mumbai, Delhi, and Bengaluru remain revenue leaders, tier II and III cities like Coimbatore, Varanasi, Rishikesh, and Udaipur are increasingly becoming hotbeds of tourism-led growth. Infrastructure improvements, spiritual and experiential tourism, and increased government focus have made these markets more accessible and lucrative.
In FY2024, tier III cities outpaced tier II cities in ADR, despite slightly lower occupancy rates—a shift indicating evolving consumer preferences and the success of marketing and investment initiatives targeting offbeat and heritage destinations.
Segment-wise Trends Show Growing Premiumization
According to Rubix, five-star deluxe hotels saw the fastest growth in ADR at 10% CAGR, while also maintaining the highest occupancy rate at 69.2%—reflecting increasing demand for luxury experiences. Meanwhile, budget and midscale hotels also reported strong growth, particularly in regional markets, where affordability and accessibility remain key.
Regional Snapshot: West Leads in Occupancy, North in Tariffs
Western India led the country with a 69.5% occupancy rate, underpinned by corporate travel and tourism in cities like Mumbai and Ahmedabad.
Northern India posted the highest ADR, driven by high-spending international tourists in hubs such as Delhi and Agra.
Southern and Eastern regions, while trailing on certain metrics, are expected to benefit from upcoming infrastructure and promotional campaigns.
Investments and IPO Activity on the Rise
Industry players are responding to the bullish outlook with aggressive expansion and funding plans. Over the next five years, more than 80,000 new rooms are expected to be added, primarily in the upper-midscale and midscale segments.
Several hotel companies, including IHCL, Leela, Park Hotels, and Juniper Hotels, have announced major investment and IPO plans. Notably, IHCL aims to double its portfolio by 2030 and has already committed ₹50 billion towards growth initiatives.
Government Backing and Policy Support
The Union Budget 2025-26 earmarked over ₹25.4 billion for tourism development. Key programs like Swadesh Darshan 2.0, PRASHAD, and the UDAN regional connectivity scheme are being expanded. These initiatives are expected to drive inclusive growth, particularly in underdeveloped regions.
Additionally, the inclusion of hospitality projects in the Harmonised Master List (HML) of infrastructure will allow easier access to long-term financing, further incentivising private investment.
Outlook: Strong Fundamentals Amid Structural Challenges
Despite a positive trajectory, the sector faces several headwinds. Workforce shortages, regulatory complexities, seasonality, and geopolitical disruptions—such as the recent cancellation of 80% of bookings in Kashmir following a terror incident—remain concerns.
Nevertheless, India’s position as one of the fastest-growing hospitality markets in the Asia-Pacific remains intact. With increasing investor interest, policy support, and a diverse demand base, Rubix Data Sciences forecasts continued momentum, placing the Indian hospitality industry firmly on the path to a new phase of growth and transformation.