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Tourism: In line of fire, again? - Views on News from Equitymaster
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  • Mar 17, 2003

    Tourism: In line of fire, again?

    The war drums are beating louder than ever with the US warning Iraq to immediately comply with the disarmament requirements. If the US goes ahead and attacks Iraq, with or without UN support, this could mean the elongation of the current global economic sluggishness. And some industries may directly feel the heat of this going forward. The tourism sector is one such industry whose growth could be severely impacted in the short term. In this article we look at how the Indian tourism industry has fared in recent years and what does the future hold for it.

    After the September 11 attacks, there was a dip in international travel. Consequently, India too was affected due to the negative travel advisories issued by western countries. This led to a 7% decline in the tourist arrivals in India during 2002. This decline could have been worse had there not been a sharp recovery in the tourists arrivals in the last quarter of the year 2002. This indicates that the September 11 gloom did not last for long and the Indian hospitality sector could look forward to a much better 2003.

    There are various initiatives taken by the government in order to promote the tourism sector in India. Though the measures may seem paltry, it is an encouraging sign that the government has started taking initiatives to promote the industry. To begin with, the industry’s long pending demand of replacing the tourism policy of 1982 was fulfilled last year. It must be noted here that this policy was framed before the opening of the Indian economy to globalisation. The new policy emphasizes on tourism to contribute to the economic growth and create employment. It also focuses on the joint role of private sector and the government at providing a push to the industry.

    The measures in the last two Union Budgets highlight the fact that the government is now looking at the sector to enhance economic growth. The government has identified 6 tourism circuits for development to international standards as was indicated in Budget 2002-03. Also, the plan outlay for tourism was increased by 50% to Rs 2.3 bn in the budget. Even in Budget 2003-04, the government has provided a set of incentives for the industry by withdrawal of expenditure tax (from 10% levels earlier) for the hospitality industry and continuation of the exemption from the levy of service tax.

    India’s share in world tourism receipts is just 0.7% and it ranks 51 in terms of world international arrivals. Though the tourist arrivals in India have declined by over 7% in 2002, the foreign exchange earnings have increased marginally from Rs 143 bn in 2001 to Rs 144 bn in 2002.

    The focus on developing the hospitality industry should see India’s share in global tourist revenues go up in the long term. Development of roads, rail, airports and seaports will go a long way in promoting India as a well-connected tourist destination. Also developments like the Government of China's decision to grant ‘approved destination status’ to India, to allow Chinese travelers to visit India in larger groups has further reaffirmed the potential of tourism in India.

    But in the short term, if the war does happen, it is not a good sign for international tourism and prospects for 2003 may again take a change for the worse.



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