Travel and Tourism

Unleashing The $1T Tourism Economic Engine

4 Mins read
  • Rahul Pandit, Member - CII National Committee on Tourism, MD & CEO – Hamstede Living

India recorded under 17,000 international arrivals in 1951. Tourism was unknown as an economic driver in 1949 when our Constitution was adopted. India did not have a Ministry for Tourism till 1967.Seen as a tag along, Tourism has been variously tied to Commerce, Agriculture, Civil Aviation, Parliamentary Affairs, Culture Ministries etc.The 42 nd Amendment in 1976 to the 7th Schedule of the Constitution added ‘socialistic’ to the preamble and migrated sectors seen as critical to nation building from the State List to the Concurrent List.While ‘Forests’ and even ‘Protection of WildLife and Animals’ made the cut, ‘Tourism’ coloured as elitist didn’t. It was left relegated as ‘Inns and Inn Keepers’. This thought process has seen 32 ministers with sub 20 months average tenure trying to lead India’s tourism agenda. Its uncertain stature in the government has been evident in the fact that Tourism Ministers for the last 8 years have had a Minister of State rank. 73 years post-Independence, Tourism has yet not been defined as a sector in the Constitution. The sector is not elitist, under 10 percent of the total branded and unbranded lodging supply in the country is 5 or 4 star. Tourism takes care of basic biological needs – to eat, rest and explore. It is as important an evolved community need as are roads and bridges.

No dominant economy today exists without strong supporting hospitality infrastructure. Massive growth in the USA happened concomitant to the creation of highways from the 50s to the 70s supported by the development of hotels and motels. Similarly, China revved its economic engine from the 90s building integrated infrastructure. Today the hotel inventory in just Beijing and Shanghai exceeds the total branded lodging supply in India. Tourism in India expanded post economic liberalization in the 90s contributing over 9 percent to GDP and 8 percent to employment. In some progressive states e.g. Sikkim’s employment share is as high as 33 percent. It also has a positive domino as each dollar ladders down from travel agencies to airlines, hotels, restaurants, transporters, suppliers, retailers and the local economy adding value at each step. This multiplier and the fact that tourism generates more jobs than auto, technology or financial services per dollar invested make it a strategic choice for attracting FDI.Post Covid, India will benefit from a China plus one strategy being deliberated by most nations. This tailwind and a low interest regime would accelerate India’s reach towards its $5T GDP aspiration.Last mile unavailability of high quality cost effective safe lodging would dampen this ambition.

What then should we do to unleash the sector’s economic might?

A. Introduce Tourism as a Concurrent List Subject to position it as a priority economic pillar guided by determined policy. This will enable countrywide holistic decision making in sync with a national growth agenda.

B. Establish an exclusive Cabinet Committee on Tourism (CCT). The PM should provide leadership to the CCT. The CCT should co-opt decision makers from the concerned ministries, industry and civil society to document an integrated blueprint for harnessing the full economic potential of Tourism, ensure speedy execution of its development agenda and remove implementation roadblocks. It should immediately focus on three objectives:

1. Infrastructure Status

The government took a bold decision in 2017 granting infrastructure status to the fledgling warehousing and cold storage sector above investments of Rs. 25Cr and Rs. 15Cr respectively. This farsighted move has attracted multi-billion dollar FDI to the sector over the last 3 years. Such status is currently given only to hotel projects over Rs. 200Cr (excluding land cost). This makes it unviable to develop great quality budget infrastructure which is an urgent need both for industry and common citizens alike. Infrastructure status enables access to funds at a lower cost, longer tenure and enhanced limits. Currently hotel projects bear high interest debt with a 9-10 years tenure. Considering the fact that construction, start and stabilisation of a project itself could take 5-7 years, many hotel developments risk becoming NPAs before they break even. Extending infrastructure status to a 20Cr investment threshold for development of hotels, transit infrastructure, capability building and destination development would attract massive FDI and global institutional capital into India’s tourism sector.

2. Pragmatic Development Norms

The cost of land in hotel projects in India is 40-60 percent of the total project value vs. 15-25 percent in USA and 10-20 percent in China. Current development norms require Indian hotels to provide parking space 10 times higher than those sought in the USA or even Singapore. Given the transient nature of today’s Uber customers, hotels in India waste 12-15 percent capital building basements and stuffing them with under-utilised mechanised car parks. Grant of higher FARs and rationalised parking norms would substantially reduce the cost of investments making them economically viable.

3. Ease of Doing Business

A developer needs 26 approvals to start a hotel project in Singapore. In India, depending on the state, one needs anywhere from 80 to 110. Many of these are sequential and need ‘in-person’ follow through since the concerned bodies do not have any deadlines for approval. Navigating this maze can take more time than constructing a hotel. Post procurement, most of these have to be similarly renewed on an annual basis. Hotel companies in India staff a department just to procure and maintain licenses and approvals. This licensing eco-system is an invisible barrier to developing tourism. The CCT should facilitate creation of an online platform for single window submission, digitized tracking and time bound approvals making the regulatory process seamless. CCT should also create a self-certification mechanism for renewals and migrate physical verifications to a 3 year frequency. A well thought through Tourism development agenda can unleash the full potential of the sector post Covid, not only attracting massive FDI to accelerate India’s economic recovery but also contribute $1T to the country’s GDP enabling sustainable jobs creation.

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