Indian hotel chains, long used to burning cash to build hotels, are now increasingly looking at management contracts with investment firms and wealthy individual investors, to continue expanding as funds become scarce and expensive as per a Reuters report.

Hotels like EIH Ltd , Hotel Leelaventure and Indian Hotels are reluctant to pursue capital-intensive projects, but do not want to lose out on the booming demand for hotels rooms in a growing economy.

With much of the new funds being raised going into retiring debt, hotels are increasingly courting boutique investment firms like Samhi Hotels and Duet India to set up properties and entering into management contracts.

Room capacity in India is expected to expand even as competition is expected to squeeze profitability. The hotel room market in India is expected to grow to 119 billion rupees ($2.4 billion) by 2013 from 74 billion rupees at the end of 2010, with an addition of about 36,000 rooms, according to property consultancy Knight Frank India.

Hotel Leelaventure, which owns five star hotel properties in Mumbai, Bangalore and New Delhi, is considering at least five proposals for managing properties under their brand. EIH, the owners of Oberoi and Trident chain of hotels, are also looking increasingly at management contracts, especially for international ventures in Dubai, Morocco and Mauritius.

"As we go forward we will see in India the largest chunk of hotel development will happen through either high networth individuals or through institutional investors who specialise in hotel development," said Akshay Kulkarni - executive director, hospitality services South Asia, Cushman & Wakefield.

That the past way of growing through building and owning hotels is difficult has become increasingly clear to Indian hotel chains.

Hotel Leela has racked up a debt burden of close to 43.5 billion rupees, not least because of its founder C.P. Krishnan Nair's penchant for building opulent hotels. It recently opened its 260-room five-star hotel in New Delhi's upscale diplomatic enclave Chanakyapuri earlier this year at an investment of 18 billion.

Saddled with debt , Hotel Leela last month agreed to sell its upscale property in Kovalam in southern India for about 5 billion rupees, but it will continue to manage the property. EIH raised 11.78 billion rupees in a rights issue earlier this year and used most of it to cut its debt of over 15 billion rupees, leaving very little for expansion.