ITS no longer necessary to convince anybody that India’s potential for tourism is huge. With the extremely limited showcasing of destinations, poor development and virtually no value-added services around, it’s no surprise that while the contribution of tourism to the ‘global’ Gross Domestic Product (GDP) is a modest 10.7%, in India it is a pathetic 5.3%. India’s share (at 2.64 million) in total international arrivals (698 million) stands at a negligible 0.38%. Of the international tourism industry revenues of US $595 billion, India accounts for a still irrelevant 0.69%.

But having said this, harnessing the potential of domestic tourism is just as important as showcasing India to the international tourist market. With the growth of the Indian economy the local Indian must also be treated as a significant market force that needs to be reckoned with in their purchasing power.

Employment potential – an important criterion for economic decision-making in a populous country like India that also has to factors in concerns of a hyperactive democracy – is yet another important benchmark. While 8% of the global workforce draws its sustenance from the sector, only about 5.6% does so in India and that probably is an outer limit figure. Given Indian labour rates, it ought to be much higher.

The story of Indian tourism therefore resembles the consultants’ favourite tale of ‘empty seats in a theatre’ and ‘missed opportunities’, which also means ‘capacity going waste’. The acute under-utilization of potential reflects the policy-makers’ continued failure to optimize ‘theatre’ capacity. An assumption that tourism, a priority for tiny island nations, can only be an ‘add on’ avenue of receipts but not a key driver of economic expansion in a large country like India, inexplicable as it is, has resulted in a slothful approach and a ruinous mind-set towards this sector.

A fundamental change is needed in our approach to the sector, both at the legislative and executive levels. The key legislative change that cannot wait for governments with definite majorities is a simple one. A harmless constitutional amendment where tourism, currently assigned to the state list, is moved to the concurrent list. By enabling the Union government to legislate on the subject, a requirement that has not been given adequate consideration over the years, excuses for a start will vanish. To help build a robust tourism infrastructure, India does need a national vision driven by the central government that is then complemented by region-specific initiatives from the state governments – the ideal for an item on the concurrent list.

 

The objective of this initiative would be to create quality ‘baskets’ of tourism destinations for each state that can help generate a cumulative appeal for the country in the international market. Unfortunately, today India has only three, all rather frayed, pockets of excellence – Kerala, Goa and Rajasthan – each more the result of the initiatives of those states and actually their tourism development managers. But with most state boards remaining lethargic, the success of a few states does not allow India to make an adequate impact on the international tourism circuit.

Another argument for including tourism in the concurrent list is that tourism destinations, particularly to the international traveller, are offered as circuits, not as individual destinations. And destinations in a circuit (decided from the point of view of logistics and thematic convergence) are often located in different states. In view of the present constraints, states end up only promoting circuits that are located within their boundaries. Joint promotion of inter-state circuits demands cooperation among various state tourism development boards and, in some cases, initiatives from the Union government. Investment in critical infrastructure for these circuits also requires central government initiatives. Uniform laws with regard to taxes, investments and land use would certainly make it easier and more attractive for investors, both domestic and global.

 

As important as harmonizing laws is the need to ensure coordination among the many departments that directly or indirectly affect the functioning of tourism. For instance, the general law and order situation in a state (the responsibility of the local home department), which impinges on both the perception and actual safety factor for tourists, influences tourist inflows and investment. Similarly, centrally dictated policies of civil aviation or surface transport as also real estate, impact the development and success of the bigger players in this industry.

Urban development, administered directly by the state governments, decides the condition of civic amenities, maintenance of local infrastructure and transport systems. The upkeep of local monuments and recreational centres are also in the domain of state governments.

Other departments, such as those responsible for environment and forests, rivers and oceans, rural development and promotion of cultural activities too affect the operation of the sector in many ways. The involvement of so many departments at the centre and state adds to the complexity of issues confronting the sector. Proposals for tourism projects running into problems in the absence of clearance from an increasingly alert department of environment and forests have now become a common occurrence.

And then there are taxes. Multiple taxes (entertainment tax, luxury tax, surcharges, etc.), constituting a major dampener for the sector, have primarily been a consequence of treating the sector as one that caters to the elite. This poses a Catch-22 situation for the policy-maker. For instance, while taxing consumption in a luxury hotel heavily may seemingly be justifiable on the ground that this primarily caters to the rich, on the obverse side, multiple taxes dampen demand in the segment, making the business cumbersome and less attractive for investors. For policy-makers to approach the sector from the point of view of consumption definitely leads to a distortion of the priorities. In a resource scarce situation private investors may not be sufficiently enthused if investment incentives – either in the form of tax sops or subsidy in selective cases – are not extended to them.

Of immediate concern to tourism entrepreneurs, over and above the taxation issue, are policies with regard to land use. For example, land use policy in some of the states require investors in hotels to seek as many as 48 bribery inducing clearances from different authorities – clearly a big deterrent to new investments. Taxes on accommodation and transportation are not only exorbitant but also vary greatly between states, making it extremely difficult for investors to plan projects on a national scale. Simplified and investor-friendly land use and taxation laws that are applicable nationally would help change this trend.

 

Both the tourism industry and the country would be better served if government were to view the sector from the point of view of production and employment generation, and remember that tourism is special because it engages numbers from among ‘the less privileged’.

Today it’s abundantly clear that it is most crucially the lack of investment that has plagued the growth of the sector all these years. Investment in the sector hovered around a paltry 0.16% of the total plan outlays between the 3rd and the 9th five year plans. This reflects poorly on the foresight of the early planners. However, things appear to have improved slightly in recent years, with 0.72 per cent of the 10th plan outlay earmarked for tourism development. The figure, however much improved over past years, still pales before the proportionate budgetary allocations in competing nations such as Malaysia (5.1%), Indonesia (8.4%), Maldives (15.7%) and China (3.8%).

 

The nature and levels of investment make it quite evident that the role of government in the coming years is likely to be limited to that of a ‘facilitator’. In fact, of the total 10th five year plan outlay of Rs 388 billion for tourism development, only about Rs 29 billion is to be drawn from the public sector. But that should not mean that the public sector is out to lose its relevance in the days to come. On the contrary, the sector would be reorienting its role, withdrawing from the front-end of service delivery, that is, owning hotels and resorts, and moving forcefully into the back-end, which primarily includes infrastructure building

Since the public sector, quite appropriately, is withdrawing from the front-end of the tourism business, the private sector needs to be wooed in every possible way to prevent any ‘gap in investment’ from accumulating.

The central government should encourage PPP (public-private partnership); the partnership has to have a right balance where the government becomes a facilitator of the right environment in which the private sector has the confidence to invest. Given the right climate of investment will enable PPP to open more vistas of potential tourism sites. For PPP to deliver tangible results there should be total commitment by the government to the tourism/infrastructure sector of India.

In view of the hidden potential of the sector, besides constitutionally becoming a concurrent subject, it is perhaps time to grant the tourism industry its long-standing demand for true ‘infrastructure’ status. This would attract capital investment more easily and, most importantly, make capital investment available at a low rate of interest. A favourably designed tax regime must ensure and enable entrepreneurs to reinvest their profits in new projects. It needs to be quickly appreciated that the sector is critically in need of capacity expansion of both back-end tourism infrastructure (as in new aviation routes linking tourist locations) and front-end service delivery facilities (such as more hotel rooms). Tourism infrastructure projects generally have a long gestation period. Expenditure in these projects should ideally be considered as an investment in the future.

 

Equally important as encouraging entrepreneurs to invest in new tourism ventures would be the creation of fresh demand for new destinations. In an era of emerging new communication platforms (like the internet) and the splintering of traditional media channels (new TV channels, newspapers and magazines), it is imperative to find the right mix of communication channels to inform the world about the attractiveness and accessibility of destinations in India.

In an increasingly competitive world, all the countries battling for the tourist are investing aggressively in their promotional activities. In this global scenario, India needs to have both a substantive promotional strategy and a matching budget that would be effective in meeting the challenges of this competition.

 

Let’s assume some or all of this happens. In the Indian context, tourism is above all an empowering industry – much more than most others. This is because the nature of tourism allows for an interesting link between economic classes that are otherwise quite disparate in their consumption patterns and orientation. Being part of the overall entertainment and leisure industry, it acts as a wealth dispersion device that a society with egalitarian aspirations should be more eager to promote. In a liberalized regime, where increased income and consumer spending is inevitable, this could be particularly relevant. Even as it fulfils consumer hunger for entertainment and leisure, it also generates employment and income generating opportunities for all.

Almost all discussion about rural development and economy revolves around agriculture. But the limited supply of the primary asset for agriculture –land – and the manifest dwindling scope of additional absorption of labour in the sector given increasing mechanization, makes it imperative to look imaginatively at rural development and consider the unexploited potential of a sector like tourism.

The strong links between tourism and the rural economy are already well recognized in theory, but have failed to attract the attention of policy-makers. Small eating joints along roadsides, vendors selling locally produced fruits, school dropouts in their inimitable broken English and localized accent playing the role of tourist guides are today’s unmistakable but often overlooked symbols of this link. But for these opportunities in remote tourist locations, a large number of employed rural habitants would remain forever unemployed. This link definitely signifies the sector’s capacity to touch the lives of the poor and the ordinary in the most remote areas of rural India. This potential – of a sector that has proven links with rural India in particular – would be of special interest to political strategists who come to power on the back of campaigns that revolve around the common man’s problems and aspirations and appeals to the ‘Aam aadmi’.

Remember also that demand for ‘real’ handicraft products is a long term advantage we have and can be a long term boost to the rural economy given that genuine handicraft goods are best produced by rural and semi-urban artisans.

 

Besides artisanal employment there is also the big opportunity for marginal entrepreneurship, as demonstrated by numerous taxi operators and travel agents in remote locations who are but symbols of the indomitable spirit of small Indian entrepreneurship. Tourism already ignites the spirit of a million entrepreneurs in the shape of taxi owners, travel agents, dhaba owners and the like. The sector’s growth in the future clearly holds the potential to initiate a socio-economic change process that has extraordinary capacity to touch the ordinary.

Currently kick-started government initiatives like ‘Atithi Devo Bhava’, which seek to strengthen the training of tourist guides, taxi drivers and other service personnel in the sector would also, in the long run, strengthen the development of further entrepreneurship. But this is limited to the aspect of ‘attitude’, and may not be enough. An expanding sector would require many more trained personnel. Private initiatives and international tie-ups for the creation of a training infrastructure to help meet future demand is critical to supplement the efforts of government. But the real action once again needs to be, and should be, at the grassroots.

 

The potential of tourism as a key driver of growth, irrefutable as it is, once again brings us to the question of developing a new approach towards the sector to enable it to play the catalyst. If international experience is anything to go by, a change in attitude towards the sector among policy-makers and investors, howsoever desirable, only remains a pious ambition till the time the host population changes its attitude. The irony today is that a Rs 50 billion steel plant attracts more attention from policy-makers and of host populations than, say, a Rs 5 billion project for a tourism complex, despite the fact that the impact of the latter on the local population is inevitably several times more beneficial.

The change in attitude needs to be both at the top of the policy-making pyramid and among the general public at the same time. Making a nation of a billion people turn around and look afresh at something is not easy. But it has to be done if the so-called ‘unoccupied theatre seats’ are to be filled up alongside the initiation of the diverse range of activities that this ‘filling act’ would trigger off across different sectors of the economy.

The general criticism that fruits of economic reforms in the country have remained confined to the ‘privileged few’, makes it obligatory for thought leaders in the country to explore and expand the potential of sectors like tourism that have an inbuilt structural bias towards truly labour intensive growth. At the rate of 47 jobs created for every million rupees of investment as compared to 13 in manufacturing, tourism offers one of the better routes of resolving our dilemma and current anxieties about ‘jobless growth’.