IN the years when India’s economy was relatively closed, the country was still renowned as a tourist destination. India still appeals to millions of overseas visitors, as well as to its own emerging middle class, whose demand for holidays has risen dramatically. New tourist resorts have sprung up, appealing to domestic and foreign visitors alike.
India’s tourist sector generates almost six percent of its GDP, is the third-largest earner of foreign exchange and employs around 40 million people (almost nine percent of total employment in the country). Around 5 million foreign tourists visited India in 2007, coupled with many more domestic tourists. In 2006 it was estimated that 382 million domestic visits took place. According to the Ministry of Tourism, domestic holidays have grown by around 12 percent over each of the past five years. The recent deregulation of flights to India has led to an increase in passenger numbers (and a fall in the price of flights), further increasing tourist numbers.
And earnings from tourism are rising. In July 2009, according to the Ministry of Tourism, tourists spent $1.03 billion in India, a near 14 percent increase from the same month in 2008. The rise came despite the only marginal growth in tourist numbers to 432,000 from 429,000 in July 2008.
Part of the success can also be put down to the “Incredible India” advertising campaign, which has won numerous awards, and contributed to a rapidly-changing external perception of India. While India’s spiritual side (and the beaches of Goa) still attracts many visitors, it now caters for tourists seeking adventure sports, wildlife and luxury train travel.
Another sector on which the government and tourist industry is focusing is eco-tourism, attempting to bring the benefits of tourism to less-developed parts of India and, particularly, using tourist income to fund conservation efforts. India is well set to build on the fastest-growing tourism market.
But, in many cities, notably Delhi, Mumbai and Bangalore, a shortage of five-star hotels, coupled with growing demand from business travelers, has pushed rates for overnight stays above $300. The potential for increased capacity is shown by the fact that, in 2006, less than 2,000 hotels were registered, with only 109,000 rooms. Of these, 27 percent were five-star hotels, 7.5 percent four-star and 22 percent three-star. For now, the industry is dominated by a small group of Indian hotel owner-managers including the Taj Group, Oberoi, ITC, Leela and Bharat Hotels. But a range of international chains also have management or franchise contracts within India. These include industry leaders such as Sheraton/Starwood, InterContinental, Hyatt, Marriott and Hilton. Other major groups, such as Ritz Carlton and Mandarin, are establishing a presence in India mainly through management contracts.
This interest is unsurprising. Foreign tourist arrivals are scheduled to grow to 10 million in the next few years, and domestic tourism is expected to continue to increase. With these projections will come rising prices in hotels, at least until new hotels are constructed. With such potential, the government allows 100 percent foreign investment in hotels and tourism, with approval granted automatically.
Only 30 percent of the hotels in India are “branded”, providing plentiful opportunities for franchising and management contracts with local owners. There is also a major shortage, particularly in India’s larger cities, of well-run guest house-style hotels.
Until now, the sector that has seen most growth has been five-star, luxury hotels. The 2010 Commonwealth Games will also provide a major impetus for the greater provision of accommodation in Delhi.
Tourism in India is developing synergies with India’s other growth sectors. Medical tourism is a growth sector, as visitors to India combine holidays with cheaper or alternative medicine. At the same time, India’s IT industry has been used to allow online booking for a range of hotels and holiday packages. Around 15 percent of tourism expenditure in India is paid for online.
India’s growing middle class has led to a surge in low-cost domestic airlines. While these have performed poorly in the last year, the growth of the sector in the previous few years has been remarkable. But surging demand led local airlines to increase orders for aircraft and offer discounted airfares in the hope of increasing market share. Such strategies are unlikely to return soon, but the switch in consumer preferences among India’s middle class toward airline travel is unlikely to fall soon.
Improving aviation infrastructure, and making India a global aviation hub, remains top on the government’s agenda. Once developed, the government envisages that Delhi’s Indira Gandhi International Airport will have a capacity of 100 million passengers. By 2010, the domestic and international terminals are scheduled to be integrated.
For now, foreign investors are prohibited from investing in domestic aviation in India. But allowing 49 percent investment has been on the cards, and given low profit margins, and the fact that most investors are likely to be foreign companies seeking to strengthen their market position, this figure may be reached. Reducing fuel prices for airlines is another step that could be taken to strengthen airlines in India.
But despite these concerns, the outlook for India’s airlines sector remains promising. Over the next two decades, Boeing believes that Indian airlines may purchase 1,000 new planes. Short-term over-capacity is likely to make way for longer-term increases in demand for air travel, both domestically and internationally.
With an increasingly diverse demand from both Indians and non-Indians for holidays within India, the outlook for this sector is distinctly rosy.