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Tourism: 'Incredible' growth potential! - Views on News from Equitymaster
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  • Apr 10, 2006

    Tourism: 'Incredible' growth potential!

    Tourism is one of the biggest industries in the world, employing more than 200 m people and accounting for almost 10% of the world's GDP. Events of September 11 coupled with global recession had resulted in an overall slowdown in travel and tourism demand in 2001-02. This was also aggravated especially in South Asia by the occurrence of SARS. From the middle of 2003, however, the travel industry witnessed improving trends. Now, the World Travel and Tourism Council (WTTC) estimates a 4.5 % per annum increase in the total travel and tourism economic activity between 2005 and 2014.

    In the overall tourism market, India so far has been a laggard. Countries such as China with about 37 m tourists per annum far outpace India which has inbound tourists numbering only around 3.6 million till last year. However, over the past two years India, there has been a sea change in terms of growth that has been recorded by the tourism industry in the country.

    Growth drivers
    After a downturn post the September 11 attacks in the US in 2001, tourism has witnessed a pickup in India over the last two years. The initial recovery in tourist inflows was led by international business traffic due to the fast growing Indian economy. The country witnessed international tourist inflow of 2.9 m in FY04, which then increased by almost 23% to touch 3.6 m in FY05. This was among the highest over the last decade. As a matter of fact, international tourists account for almost 65% of the total hotel room demand in the premium segment in the country. Promoting the same, thus, gains importance with respect to the overall prospects of the tourism industry in India.

    On the other hand, domestic tourism, which has grown at a CAGR of 40% during the past 5 years, is emerging as another key growth driver for the industry. Growth for this segment (constituting of over 300 m tourists) is being led by rising disposable incomes and increased levels of discretionary spending by households. Low cost airlines and government initiatives have further encouraged growth of domestic tourist flows in the country.

    Growth promoting measures
    Till about a few years ago, the government had a total apathy towards promotion of tourism. In fact, the industry did not find a place in government fund allocation. Things have, however, changed for the better, at least if one goes by the allocation towards tourism in the tenth five-year plan (2002-07). The 'Incredible India' is a product of this realisation from the government's focus on promoting tourism in the country.

    Some of the other government initiatives that will be helpful to the tourism industry (and consequently the Indian hotel industry) are:

    • Improving road network in terms of rapid progress on the Golden Quadrilateral and North-South East-West corridors;

    • Modernisation of the Delhi, Mumbai, Chennai and Kolkata international airports and upgradation of Bangalore and Hyderabad airports to give them 'international' status;

    • Integrated development of mega cities and small and medium towns;

    • Removal of a 10% expenditure tax and abolishment of the inland travel tax of 15%, reducing overall costs for tourists;

    • An open-sky policy within the ASEAN region and with the US, which allows foreign airlines landing rights within India. This shall significantly improved tourist traffic and boost arrivals in the leisure segment.

    The World Travel Organisation has identified India as one of the fastest growing tourist destinations in the world and expects tourist inflows to more than triple from the current level to 8.9 million by 2020. We believe that improving economic environment along with rapid progress on the infrastructure development front shall consequently aid the prospects of the tourism and hospitality industry in the country.

    And this shall be beneficial for hotel companies that are able to scale up to meet additional demand from both domestic and international tourists.



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