May 7, 2008 7:02

The trials of building a Four Seasons in Mumbai

The new Four Seasons Mumbai has just opened its doors. And as the FT reports, (via the Indian Economy Blog), it wasn't easy getting to this point:

Property analysts estimate there is a shortage of 100,000 hotel rooms in India – more than the existing supply. Archaic restrictions that have prohibited the construction of high-rise buildings and sky-high land prices have contributed to the shortage, Vincent Lottefier, chief executive of Jones Lang LaSalle Meghraj, says.

Bureaucracy and a shortage of skilled workers make building hotels difficult – the opening of the Four Seasons was delayed by at least two years. The hotel needed 165 government permits – including a special licence for the vegetable weighing scale in the kitchen and one for each of the bathroom scales put in guest rooms. In the end, the hotel cost $100m (€64.5m, £51m), or about $500,000 per room, and prices – which start at $500 per night rising to more than $1,000 – reflect that.

The software and call-center businesses that have been such successes in India were an out-of-nowhere surprise to politicians and regulators, have avoided much in the way of crazy regulation, and are thus extremely competitive globally. Most of the Indian economy remains an entirely different story.

It seems like all this bureaucracy and inefficiency will be a big drag on Indian growth. Then again, I remember when the McKinsey Global Institute made the shocking discovery back in the early 1990s that most of the Japanese economy was insanely inefficient and unproductive. The country's global success in cars, electronics, and a few other sectors was enough to propel it to prosperity. Those industries made the country rich, while the inefficient remainder kept the bulk of the workforce employed.