Overview
The Indian hospitality industry along with tourism continues to be one of the key segments driving the growth of the services sector in the Indian economy. Currently, Indian economy ranks 6th in the world in terms of GDP as of FY19 as per IMF (2019 estimates). Travel and tourism sector contribute about US$ 247 billion (y-o-y growth of 6.7%) as per World Travel & Tourism Council’s (WTTC), providing employment to about 42 million persons. Also, travel & tourism is the 3rd largest foreign exchange earner for the country. As of 2018, India ranks 3rd as per WTTC travel and tourism power ranking.
Evolution of the Indian Tourism and Hospitality Sector
Pre-1990
The National Tourism Policy was announced in 1982.
The government formulated a comprehensive plan in 1988 to promote tourism.
1990-2000
Various states in India declared tourism as an industry.
The government stressed on private-public partnership in the sector.
Government policies give a fillip to the hotel industry.
2000-05
A national policy on tourism was announced in 2002, focusing on developing a robust infrastructure.
Online travel portals & low-cost carrier airlines gave a boost to domestic tourism.
2015 onward
The government has undertaken various marketing initiatives to attract tourists.
The national Medical & Wellness Tourism Promotion Board formed in 2015.
12 Institutes of Hospitality Management sanctioned in north-east states in August 2016.
E-Tourist visa launched and 1.697 million tourists arrived in India in 2017 through this facility.
Travel and tourism sector accounted for 8% of total employment opportunities in India in 2017.
Global Data 2019
· While the global economy grew by 2.5%, Travel and Tourism grew more significantly at 3.5%.
· 1 in 4 net jobs were created by Travel & Tourism over the last five years.
· Travel and tourism contributed 10.3% in total GDP and generated 330 Mn jobs globally.
India 2019 Key Data
· Contribution of Travel and Tourism to GDP: 6.8% of Total Economy + 4.9% real economy GDP Growth
· Contribution of Travel and Tourism to employment: 39,821.8(000’s) Jobs i.e. 8% of total employment
· International Visitors Impact: INR 2,130.5 Billion i.e. 5.6% of total exports
The segments of the tourism and hospitality industry are shown below:
India has a rich cultural and historical heritage. It also offers geographical diversity-India has 35 world heritage sites and 10 biogeographic zones. These factors provide the tourism and hospitality industry in the country huge scope for growth.
Investments
1)India was globally the third largest in terms of investment in travel and tourism with an inflow of US$ 45.7 billion in 2018, accounting for 5.9 per cent of the total investment in the country.
2)Hotel and Tourism sector received cumulative FDI inflow of US$ 15.28 billion between April 2000 and March 2020.
India has:
Government Initiatives
The Indian Government has realised the country’s potential in the tourism industry and has taken several steps to make India a global tourism hub.
Some of the major initiatives planned by the Government of India to boost the tourism and hospitality sector of India are as follows:
Ministry of Tourism launched DekhoApnaDesh webinar series to provide information on many destinations and sheer depth and expanse on the culture and heritage of India.
Ministry of Tourism launched Audio Guide facility App called Audio Odigos for 12 sites in India (including iconic sites).
Prime Minister, Mr Narendra Modi urged people to visit 15 domestic tourist destinations in India by 2022.
Statue of Sardar Vallabhbhai Patel, also known as ‘Statue of Unity’, was inaugurated in October 2018. It is the highest standing statue in the world at a height of 182 metre. It is expected to boost the tourism sector in the country and put it on the world tourism map.
Government of India is working to achieve one per cent share in world's international tourist arrivals by 2020 and 2 per cent share by 2025.
Under Budget 2020-21, the Government of India has allotted Rs 1,200 crore (US$ 171.70 million) for development of tourist circuits under Swadesh Darshan for eight Northeast states.
Under Budget 2020-21, the Government of India has allotted Rs 207.55 crore (US$ 29.70 million) for development of tourist circuits under PRASHAD scheme.
In 2019, Government reduced GST on hotel rooms with tariffs of Rs 1,001 (US$ 14.32) to Rs 7,500 (US$ 107.31) per night to 12 per cent and those above Rs 7,501 (US$ 107.32) to 18 per cent to increase India’s competitiveness as a tourism destination.
In September 2019, Japan joined a band of Asian countries, including Taiwan and Korea among others, to enter India’s tourism market.
Achievements
Following are the achievements of the Government during 2019-20:
During 2019-20, an additional fund Rs 1,854.67 crore (US$ 269.22 million) was sanctioned for new projects under the Swadesh Darshan scheme.
Ministry of Tourism sanctioned 18 projects covering all the North Eastern States for Rs 1,456 crore (US$ 211.35 million) to develop and promote of tourism in the region under Swadesh Darshan and PRASHAD schemes.
Statue of Sardar Vallabhbhai Patel, also known as ‘State of Unity’, was inaugurated in October 2018 and the total revenue generated till November 2019 stood at Rs 82.51 crore (US$ 11.81 million)
FTA: Last year, 10.89 million foreign tourists arrived in India, achieving a growth rate of 3.20 per cent y-o-y, while the number was 10.56 million the year before and 10.04 million in 2017. With travel restrictions in place and the fear of the pandemic spreading, in February 2020, 1.01 million foreign tourists arrived in India compared to 1.08 million in February 2019, registering a year-on-year decrease of 6.6 per cent already. This was the sharpest decline since 2015 and also the first in the month of February. FTAs in January 2020 were 11,18,150 as compared to 11,03,380 in January 2019 registering a growth of 1.3%. The percentage share of Foreign Tourist Arrivals in India during January 2020 among the top 15 source countries was highest from Bangladesh (18.68%) followed by USA (15.34%), UK (9.68%), Canada (4.51%), Australia (4.01%), Russian Fed (3.75%), Malaysia (2.89%), China (2.86%), France (2.54%), Germany (2.37%), Sri Lanka (2.24%), Japan (2.06%), Thailand (1.52%), Rep. of Korea (1.47%) and Nepal (1.41%).
Domestic Tourism grew up to 1.82 billion in 2018-19
Foreign exchange earnings from tourism in India from 2000 to 2018 (in billion U.S. dollars) is 28.59. During 2019, FEEs from tourism increased 4.8 per cent y-o-y to Rs 1,94,881 crore (US$ 29.96 billion). In 2019, arrivals through e-Tourist Visa increased by 23.6 per cent y-o-y to 2.9 million. International hotel chains are increasing their presence in the country, and it will account for around 47 per cent share in the tourism and hospitality sector of India by 2020 and 50 per cent by 2022.
India offers a host of tourist offerings to both foreign and domestic travellers. Features of the tourism offerings are as below:
E-medical visas are being issues exclusively for medical treatment. Reasonable medical fees, skilled medical professionals and world-class hospitals to help the medical tourism segment. Travellers also visit for ayurvedic, spa and other therapies. 0.20 Mn medical tourist arrived in India in 2016 compared to 0.13 Mn in 2015.
Wide variety of adventure activities like mountaineering, trekking, bungee jumping, mountain biking, river rafting and rock climbing are available for travellers to explore.
India has a rich cultural heritage. There are various temples, forts, gardens, religious monuments, museums and art galleries for travellers to explore.
Government is promoting travellers to visit villages and experience the village lifestyle. This will also help the people residing in those areas economically and socially.
Pilgrimage tourism is one of the biggest contributors to the tourism industry. India is a religious hub for different cultures and attracts large no of tourist every year.
MICE (meetings, incentives, conferencing & exhibitions) segment is one of the fastest growing segments.
E-tourist visa scheme which was launched on Nov 27, 2014, has been renamed to e-Visa scheme in November 2016. This e-Visa scheme can be classified into three categories namely e-tourist visa, e-business visa and e-medical visa to 161 Countries are covered under this scheme as on Jan 2017, prior to the launch of the e tourist scheme this facility was available to nationals of only 12 countries.
Hotels
Hotel segment consists of business hotels, resorts, apartments, convention and conference centres. Local restaurants, cafeterias, outlets serving food and beverages also are included in this category.
Salient features of the hotel industry are:
Hotel demand is closely tied to economic development, tourism, transportation infrastructure and development of commercial real estate. The hotel industry Is cyclical in nature.
Corporate demand is the key driver for the hotel market. The MICE (meetings, incentives, conferences and exhibitions) segment has seen tremendous growth.
Capital intensive industry, huge investments are required to set up hotels.
Longer gestation periods, it takes 2-3 years to develop and another 2-3 years for the hotel to generate returns. Hence returns are about 5-6 years away after the development of a hotel has started. Gestation periods to set up hotels in India are higher than that for setting up hotels in any other part of the world.
Three important metrics to check while evaluating a hotel business is occupancy, ADR9average daily rent) and RevPAR (revenue per available room).
Supply of new hotels to rise 3-4% over the next 2-3 years as compared to a high of 6-8% over the past five years, demand to increase.
Important measure to gauge the success of a hotel is to check its variable/fixed cost ratio. The industry has taken the various steps to manage costs, some of them are:
Convert fixed costs to variable
Reduce energy costs
Managing manpower cost
Decrease project costs
Setting up of high-class institutions to train people.
High attrition rates are seen in the F&B and front office segments.
80-100 permissions are required to set up a hotel in India. Players in the industry are preferring to acquire hotels than set up hotels from the beginning.
Cost of land is high in India. Around 50% of total cost is pent on acquiring land while setting up a hotel, however, manpower costs in the hotel industry are lowest in the world, aiding in better margins.
There is enough supply of hotel rooms in cities. There is a shortage of rooms in the mid-market and budget hotels. Players looking to invest in tier 1&2 cities.
Luxury hotels require huge in vestments and have larger gestation periods when compared to budget hotels.
Hotels have three sources of revenues- Rooms, F&B and others. The segments on average contribute 51%, 42% and 7% to hotel revenues.
Drivers of the tourism and hospitality industry
Tourism and hospitality industry is one of the 25 sectors under the governments make in India initiative.
Improving infrastructure, liberalisation of air transport and government encouragement of private-public partnerships (PPP) will be the key growth drivers for the industry.
Rising household incomes to drive domestic tourism.
Growth in various tourism segments like medical, eco & pilgrimage tourism to drive growth for the whole industry.
The emergence of online travel portals. 70% of air tickets are booked online. Online portals like MakeMyTrip provide host of deals and at reasonable prices.
100% FDI in tourism and hospitality through the automatic route.
100% FDI in tourism construction projects, including the development of hotels, resorts and recreational facilities.
Incentives provided for setting up projects in special areas- North East, J& K, HP and Uttarakhand.
Various incentives offered by state governments like subsidised land, relaxation of stamp duty, investment subsidies/tax incentives, power tariff incentives and special incentives for mega projects.
Focus on skill development, 21 government-run hotel management and catering technology institutes and 10 food craft institutes have been established to impart training to staff in the hotel and catering industries.
Steps taken by the government on the e-tourist visa front to drive growth of this industry.
Sum of $108 million set aside for developing Swadesh darshan (13 theme-based tourist circuits) and $15.38 million for pilgrimage rejuvenation and spirituality augmentation drive (PRASAD) for the beautification of pilgrimage centres. State have given freedom to develop tourist infrastructure as per local needs.
Income tax (IT) holidays for 2-4-star hotels established in specified districts having UNESCO declared world heritage sites.
Capital subsidy programmes for budget hotels; Industrial sector, growth of the manufacturing and logistics sector and setting up of industrial corridor and warehousing sector to aid in the demand for hotels in these areas.
Campaigns like incredible India and Athithi Devo Bhava to help the industry.
Challenges of the tourism and hospitality industry
Infrastructure needs to be developed, the country still has poor and unsafe road transportation. Regional air connectivity needs to improve.
The industry is labour intensive, Labour laws at the centre and states are affecting existing and new businesses.
Unsanitary conditions and safety of travellers are an area of concern.
Unregulated tourism activities are affecting the ecological balance in those places.
GST on hotels is charged on the room tariff and ranges between 0-28%. Neighbouring countries like Myanmar, Thailand, Singapore and Japan have rates between 5-10%.
Granting infrastructure status to the hospitality sector will help, currently, the industry doesn’t enjoy this status
80-100 permissions are required to set up a hotel.
Rising costs of land and higher financing costs result in higher gestation periods. It leads to higher room tariffs
Listed Companies.
Below are the top 5 companies listed on the Indian exchanges based on the revenues they generate
Source: Morningstar India
Below are the companies listed in the theme park and tour & travels business:
Source: Morningstar India
Recent Announcements regarding Foreign Investment
In April 2019, US company Airbnb has invested $ 75 mn in SoftBank backed hospitality firm Oyo in a funding round giving it access to Airbnb's global as well as Indian user traveller base.
In May 2018, Realty firm Embassy group will invest $ 197.1 mn to develop four new hotels in Bengaluru as part of its expansion plan the in-hospitality business.
In May 2018, Leisure Hotels Group to invest $ 14.6 mn to add 8 properties by 2020-end.
In April 2018, Specialty Restaurants to invest $ 5.9 mn, to open 8-12 new outlets.
Policies and Schemes to promote Tourism and Hospitality
Constitution of National Medical & Wellness Tourism Board.
Guidelines for Approval of Online Travel Aggregators (OTAs).
Guidelines for Promotion of MICE Tourism Under Champion Sector Services Scheme.
National Heritage City Development and Augmentation Yojana Drive.
National Tourism Policy.
PRASAD- Pilgrimage Rejuvenation and Spiritual Augmentation Drive.
Sikkim Tourism Policy 2018.
Swadesh Darshan Scheme.
Impact of Budget 2020
FINANCE MINISTER Nirmala Sitharaman presented the Union Budget 2020-21 on February 1. The proposed budget included the allocation of Rs. 2500 crore for tourism promotion, the establishment of an Indian Institute of Heritage and Conservation under Ministry of Culture. FM also announced the development of five archaeological sites which includes: Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu). The Union Budget 2020-21 is a progressive document to ensure economic growth. Measures for enhancing investment climate, boosting transport infrastructure and education and push towards digitalization will spur tourism and hospitality sector. The proposal to develop iconic sites with on-site museums is a welcome measure to boost tourism. Besides, the proposal to establish more airports and monetise 12 lots of highway bundles of 6,000 km by 2024 will lay the framework for enhancing the attractiveness of India as a tourism destination.
Impact of Covid-19
The Hospitality and Tourism sector is facing a "lockdown situation" with negligible demand of both international and domestic leisure and business traveller. The coronavirus pandemic would have a debilitating impact on India's tourism sector with the industry estimating an overall loss of Rs 5 lakh crore and job cuts for 4-5 crore people. Of the total losses, the organised sector in the industry -- branded hotels, tour operators, travel agencies which are the mainstay of the sector - may be hit the hardest with an estimated loss of around Rs 1.58 lakh crore, according to Confederation of Indian Industry estimates. The industry body has said that branded hotel groups are set to lose as much as Rs 1.10 lakh crore, online travel agencies Rs 4,312 crore, tour operators (inbound and domestic) Rs 25,000 crore, adventure tour operators Rs nearly 19,000 crore and cruise tourism Rs 419 crore. Sources in the Union Ministry of Tourism said the government is considering helping the sector with soft loans, working capital and deferment on loan repayments. The ministry itself, in a presentation to a parliamentary panel on transport and tourism last month, had pegged the losses at Rs 5 lakh crore, quoting industry estimates. Other than the organised sector, the tourism industry also gives employment to small homestays, bread and breakfasts and small hotel operators and their services will also take a major hit. As per the World Economic Forum (WEF), the coronavirus pandemic is putting up to 50 million jobs in the global travel and tourism sector at risk. Of the 50 million jobs that could be lost, around 30 million would be in Asia. The industry is facing an existential crisis today
Tourist Arrivals in India decreased to 328462 in March from 1015632 in February of 2020.
Expectation from government:
The Hospitality and Tourism industry has expressed shock after finding no mention in the fifth and last tranche of the economic stimulus package announced by Nirmala Sitharaman. Due to nearly two months of complete lockdown amid Covid-19, the hospitality sector and restaurants are the among the worst hit. Expressing displease for completely excluding from any kind of relief for the sectors that contribute close to 10% of the country’s GDP, the hospitality industry’s apex Association- Federation of Hotel and Restaurant Associations of India(FHRAI), has called for the government to immediately action a stimulus package for avoiding unfathomable consequences of falling the industry. The industry is decidedly looking at a major catastrophe including massive jobs loss, bankrupt enterprises and define closure of at least 70% of hospitality establishments across the country. An industry that the Hon.PM has mentioned as being one of the five pillars of economic growth and the country’s pride was once again completely omitted from any kind of relief, there was no mention of hospitality and tourism at all. The tourism industry is gasping for oxygen and urge the government to pronounce immediate sectoral relief for the industry. CII said the industry will see cash flows beginning to improve in November, 2020 and perhaps get to normal levels by early 2021. Short-term interest-free or low-interest loans for rebuilding business, 12-month deferment of all statutory dues and a moratorium of additional three to six months on all working capital principal, interest payments on loans and overdrafts. These steps for the industry, would bring in liquidity, allowing for business continuity.
Road Ahead
India’s travel and tourism industry has huge growth potential. The industry is also looking forward to the expansion of e-Visa scheme, which is expected to double the tourist inflow in India. India's travel and tourism industry has the potential to expand by 2.5 per cent on the back of higher budgetary allocation and low-cost healthcare facility according to a joint study conducted by Assocham and Yes Bank. Tourism and hospitality is one of the emerging industries in the county. The industry has the potential to be the biggest employment provider to people who are entering the workforce every year. It can also move from being the 3rd highest foreign exchange earner to the top spot. The government has also made the right moves like easing the visa process and investing in the sector to boost and encourage the industry. Rising incomes and better connectivity will boost domestic tourism. India’s rich cultural heritage and various offerings will also pull foreign tourists to explore these places. The tourism and hospitality sector can be one of the brightest sectors and one to look out for in the future. Multinationals moving to India will give huge boost to MICE segment post Covid recovery.
Sources: Economic Times, InvestIndia, WTTC, IBEF, medias, reports, Ministry of Tourism