Incredible Indias Tourism Sector Promises A Scenic Turnaround
India is one of those countries that can boast of a wide array of attractive tourist destinations. Mountains both green and white, beautiful sunny beaches, alluring forts and palaces of Rajasthan and other states, dense forests of the north-eastern region, shimmering backwaters and gorgeous temples of South India – the list could go on and on if we were to highlight all the tourist attractions that makes India such an attractive destination.
All the 28 states and the nine Union Territories have so much to offer to both domestic and foreign tourists. Incredible India, it certainly is! Moreover, with a geographical advantage, India is fringed by the mighty Himalayas in the north, stretching towards the Tropic of Cancer and tapering off into the Indian Ocean to the south with the Arabian Sea and Bay of Bengal on each side.
Travelling through India, tourists are greeted by the diverse culture, various nuances of art, and differences in faith along with colourful festivals and a myriad of cuisines to relish. It is all this and more that therefore makes tourism an increasingly major growth driver of India’s economy, now contributing close to USD 250 billion or 9.2% of the country’s gross domestic product (GDP) in 2018. It has also earned foreign exchange to the tune of USD 28.9 billion, accounting for 5.4% of the total national exports. The promotion and development of Indian tourism comes under the aegis of the Ministry of Tourism (MoT) and its primary objective is to promote the country’s unique heritage, culture and geographical attractions to tourists both domestic and international. Tourism is also important for the employment opportunities it generates, providing a further fillip to economic development and appreciation of cultural similarities and differences. Transport, finance, recreation, health and hospitality attract additional investments owing to tourism. According to the calculations of the World Travel and Tourism, tourism generated `16.91 lakh crore in 2018 and supported 42.673 million jobs, 8.1 per cent of its total employment. Furthermore, the sector is predicted to grow at an annual rate of 6.9 per cent to `32.05 lakh crore by the end of 2028, 9.9 per cent of GDP.
Schemes of Ministry of Tourism
Given the encouraging scenario, the Ministry of Tourism has undertaken many projects to present India as a perfect tourist destination and create a visitor-friendly image of the country. The ‘Atithi Devo Bhavah’ campaign and the ‘Incredible India’ campaign served to be incredibly successful in creating a vibrant and stunning image of the country as a perfect holiday destination. Moreover, schemes such as ‘Swadesh Darshan’ aim to develop theme-based tourist circuits to augment tourists’ experience and also enhance employability. Under the scheme, 15 thematic circuits have been identified for development. These comprise the Northeast India Circuit, Buddhist Circuit, Himalayan Circuit, Coastal Circuit, Krishna Circuit, Desert Circuit, Tribal Circuit, Eco Circuit, Wildlife Circuit, Rural Circuit, Spiritual Circuit, Ramayana Circuit, Heritage Circuit, Tirthankar Circuit and Sufi Circuit. Since the inception of the scheme in 2014, an amount of `6,113.73 crore has been sanctioned for 77 projects with a total release of `3,250.72 crore till March 2019. Under PRASHAD scheme that promotes religious destinations, 41 sites have been identified at present in 25 states for development. Since the inception of the scheme, an amount of `857.61 crore has been sanctioned for 28 projects with a total release of `396.67 crore till March 31, 2019.
Initiatives of identification, development, diversification and promotion have been taken by the Ministry of Tourism for the promotion of niche tourism products of the country like cruise, medical, wellness, meetings incentives conferences and exhibition (MICE), film tourism, adventure, etc. to endorse India as a 365-days’ tourist destination. The ‘Incredible India 2.0’ campaign of the MoT marks a shift from the generic promotions undertaken across the world to market-specific promotional plans. The campaign covers important source markets for Indian tourism and also takes into account emerging markets with significant potential.
Government measures to boost tourism
The government has also been making serious efforts to boost investments in the tourism sector. Through the automatic route in the hotel and tourism sector, 100% foreign direct investment (FDI) is allowed. A five-year tax holiday has been offered for 2, 3 and 4-star category hotels located around UNESCO World Heritage Sites, except Delhi and Mumbai. The tourism and hospitality sector is among the top 10 sectors in India to attract the highest FDI. According to data released by the Department of Industrial Policy and Promotion (DIPP), the hotel and tourism sector attracted around USD 10.6 billion of FDI between April 2000 and September 2017; since then the total FDI received was around USD 1.75 billion from September 2007 till March 2019.
Considering the importance of visa facilities, long-term tourist visas of five years’ duration with multiple entries, carrying a stipulation of 90 days for each visit, has been introduced on a pilot basis for the nationals of 18 selected countries. A study was conducted by the MoT which has reinforced the belief that the presence of the facility of visa on arrival (VoA) significantly impacts the tourists’ travel plans to any country. Some of the countries that have been offered VoA facility include Thailand, Mauritius, British Virgin Islands, Bhutan, Seychelles, Haiti, Cambodia, Togo, St. Lucia, Maldives, Kenya and Jamaica.
Statistics tell the story
As per data provided by the Ministry of Tourism, in the period of January-July 2019, a total of 15,34,293 tourists arrived on e-tourist visa as compared to 12,68,077 during January-July 2018, registering a growth of 21%. Foreign tourist arrivals (FTAs) during the period January-July 2019 were 60,84,353 as compared to 59,57,816 in January-July 2018, registering a growth of 2.1 per cent. FTAs in India during January-November 2018 were 93.67 million (provisional) with a growth of 5.6 per cent over the corresponding period of 2017. As far as tourism is concerned, the year 2017 was a remarkable year for India as it received more than 10 million tourists for the first time in history, registering 14% growth in 2017 over 2016.
Aviation and hotel industry
The aviation sector influences the tourism industry to quite an extent. Tourism and air transport complement each other as tourism depends on transportation of tourists while the transportation industry relies on tourism to generate demand for its services. The main mode for international tourism is Air transport. Unfortunately, this year the world witnessed events that negatively impacted the travel and tourism sector. For instance, the portentous terrorist attacks in New Zealand, Pulwama and Sri Lanka which significantly impacted travel demands. In India, floods in various regions kept tourists away. An additional factor was the chaos in the Indian aviation sector that had a direct impact on airfares. The collateral damage caused by the downfall of a long-established airline with significant seat capacity on both domestic and international routes has prepared other players of the industry to be on a lookout and identify systemic risks and plan mitigation actions for the same. Meanwhile, the overall slowdown in world economy has affected the tourism and hospitality sector. The growth in foreign tourist arrival is on the borderline. Rather, it has shrunk and economic downturn is to be blamed.
However, on the brighter side, online access to travel plans is creating superfluous demand and is increasing the market size. Within the travel sector, nearly USD 24 billion incremental travel bookings will be clocked online by 2021. Many of the travel service companies in India have exemplar travel plans to offer to their clients, which positively impacts the growth of tourism.
The growth in Indian travel and tourism sector has largely been driven by domestic tourists and on that note most domestic tourists are looking for affordable stays. As such, budget hotels in India are on the rise to cater to such needs. The online booking of hotels through multiple online aggregators offering great discounts and deals has made it easy for people to make their travel plans. Today, almost everyone would like to grab the opportunity of online hotel booking rather than an offline booking due to convenience. However, an issue that the organised hotel industry is facing is the presence of unlicensed players on these portals that has made clients wary. The Federation of Hotels and Restaurants Association of India claims that 40% of the room inventory available on these platforms is illegally operated sans any license. To prevent any damage to the country’s reputation, the MoT is looking at weeding out the present unlicensed properties on the online travel portals.
"The travel and tourism industry accounts for about $1.7 trillion, which is around 2% of the global gross domestic product (GDP). World Tourism Organization (UNWTO) has stated that more people than ever, i.e. around 1.4 billion have traveled internationally for their holidays in 2018 while global tourism hits record highs."
Hospitality and tourism stocks
But naturally, companies engaged in the business of tourism, travel and hospitality sector have been affected by the slowdown in economy and weak market sentiments. The tourism and hospitality sector is currently trading at a P/E of 46.54x. On an average, the EPS growth on a year-on-year basis stood at 30.69%. In a period of one year – as on September 20, 2019 – Howard Hotels has delivered the highest return of 38.89% followed by The Indian Hotels Company reflecting 15.37% over the year.
The good news is that very recently theGST Council announced a tax rate cut on hotel room tariffs, aimed to boost the hospitality sector. For hotels, Finance Minister Nirmala Sitharaman announced that rooms which are priced at `1,000-7,500 per night will now levy a tax of 12% as against the earlier 18 per cent. Rooms which charge more than `7,500 will now levy 18% as against the earlier 28%. For rooms that charge less than `1,000 per night, the GST has been waived off. The new GST rates are bound to affect the stocks of the hospitality sector more positively.
Umesh Mehta
Head of Research, Samco Securities
Despite these challenges, the demand for hotel rooms has grown faster than supply. Occupancy levels also stood robust at 65.3% in 2018, the highest in the past 10 years at an all India level. This trend is expected to continue given the brand recall value. The Indian rupee has also depreciated compared to other currencies which can attract tourists to visit our homeland. However, with lower entry barriers this industry faces stiff competition from OYO rooms and other apartments and rental rooms, thereby posing a threat to the entire hotel industry
Ankit Rastogi,
Vice President, Cleartrip
"India Will Become The Third-Largest Aviation Market By 2024"
By what rate is the tourism sector growing in India?
India has established itself as one of the fastest-growing travel markets across the globe in the past decade. The sector is predicted to grow at an annual rate of 6.9% to `32.05 lakh crore (USD 460 billion) by 2028 (9.9% of GDP). However, with the occurrence of different unforeseen episodes in the country’s tourism industry, the predicted growth rates may witness some variation. Though with the government’s clear intent to boost the industry, the offsets may only be temporary. Some of the recent government initiatives have a huge potential to impact the tourism growth rate positively.
For instance, Prime Minister Narendra Modi’s invitation to the countrymen to visit 15 destinations by 2022 will give a fillip to the domestic tourism sector. Similarly, Finance Minister Nirmala Sitharaman spoke about building 17 model sites to encourage inbound tourism in her maiden budget speech. Reports show that inbound tourism has gone up by 2% while outbound tourism is estimated to grow by 9%-10%. In the last two years, India has moved up by six places to the 34th position on the World Travel and Tourism Competitiveness Index according to a recent report by the World Economic Forum (WEF).
What is the business growth and outlook for online booking portals such as yours?
After receiving more than 10 million international tourists annually since the last three years the tourism industry is clearly on a high growth path. Fuelled with improving infrastructure around connectivity, visa ease, stability around security, and rising international chains’ growth in the hospitality sector, the travel industry will acquire more momentum. With India being able to offer cultural heritage, variety of local food and natural vistas at affordable price points, India will be a cynosure for many in the coming years. With respect to outbound travel, Indians are travelling like never before. Increasingly, several countries are looking to welcome Indians, growing around a healthy 9-10%. Soon, 30 million Indians annually will be visiting abroad, ensuring an increase in the number of international tourism boards setting shop in the country and customising their offerings for our travellers. There are many reports that give a positive conclusion for sector growth. Our long-term outlook for travel remains strong in our operating regions driven by young, technology-savvy populations, rising income levels, and continuing shift to online channels. This allows us to continue investing in the long-term growth of our business.
Conclusion
According to a report titled ‘Travel and Tourism Competitiveness 2019’, published by the World Economic Forum (WEF), India has registered a big improvement by jumping from the 40th rank in 2017 to 34th for 2019. The report also mentions that India has registered the greatest percentage improvement to its overall score, thereby helping it to become the only lower-middle income country in the top 35. India’s success in travel and tourism was pushed by several measures that the government undertook. Conversely, the government has to push for higher domestic tourism growth, given the fact that it is one of the country’s strongest drivers.
What will drive the industry forward depends on several key areas, including availability of disposable income, the budding love for travel and tourism across all age groups, and springing up of new travel destinations with plentiful options of budget stay.
With MoT’s schemes and new tourism policy we may see both domestic and foreign tourism on the rise. Keeping that in mind – coupled with the convenience of visa facilities for foreigners, better amenities for domestic and foreign tourists, and also a wide expansion of tourism activity being carried out by the MoT – companies catering to the needs of tourists should thrive.
Life today is moving at a much faster rate than anticipated. Every working person desires to take a break during the weekend or plan for longer vacations. Traditional and emerging themes of tourism that include nature, heritage, culture, adventure, medical, MICE and wedding, among others, have been essential to attract domestic and foreign tourists.
Strong domestic demand and economic growth, infrastructure development, competitive pricing, and the emergence of new exciting destinations and niche tourism products will continue to drive the growth of the industry in the future. The government’s thrust on infrastructure development in general and especially for tourism purposes could likely benefit the tourism stocks in the long run.