Indian Tourism Sector and Union Budget 2011

Indian Tourism Sector Implication of Union Budget 2011Implication of Union Budget 2011


International Tourism Industry

682 702 691762

802847

901 920880

933

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

International Tourist Arrivals (ITAs), 2001-10 (Figures in Million)

Source: World Tourism Organization (www.unwto.org)

International Tourist Arrivals was totaled 642 million between January and August 2010, expecting to increase in the range of 5%-6% over the

full year.


4

74

55 52 51

43

28 26 24 24 23

5

79

58 5753

43

3025 25 22 22

5

79

61

5356

43

30 2925 24 23

6

France United

States

Spain China Italy United

Kingdom

Turkey Germany Malaysia Mexico India

International Tourist Arrivals by Country of Destination. 2008, 2009 and 2010(Figures in Million)

Top 10 Destination – Country wiseOut of a global total of 880 million tourists in 2009, India was ranked at 41st place, still a long way to be among top 10 destinations in the world.

Source: World Tourism Organization (www.unwto.org), http://www.statistics.gov.uk/cci/nugget.asp?id=352Figures for Italy and Germany are not updated.

2009

2008

2010


World Travel Market

• In 2009, International tourism with tourist arrivals was down by 4% and world travel exports fell by 9% worldwide. However, Asia was least impacted

• World tourism is recovering rapidly. According to WTO, the number of international tourists increased by 3-4% in 2010.

Source: World Tourism Organization (www.unwto.org) and Indian Economic Survey 2010-11

Decline in Number of International Tourists, 2009(Figures in %)


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Tourism Market in India

• India is a land of vast attractions, ranging from diverse natural formations to historical monuments and relics going back to more than two millennia, there is vast scope for expansion of tourism in India.

• In 2010 the total number of foreign tourists that arrived in India was 5.58 million and they brought in a foreign exchange earning of Rs. 648.89 billion ($14.4 billion).

• It should be possible for India to get many times more inbound tourists than it currently does.

Tourism is the key area which can yield large benefits for society.


• FTA in India jumped to 5.58 million in 2010 compared to 5.11 million in 2009. Similarly, FEE increased to $14 billion compared to $11 billion in 2009.

• There is a need to offer unique experience to international tourists. – International tourists are used to

booking their stay online. – In India, Tourists have to depend

on local travel agents to find a place to stay.

Foreign Tourist Arrivals

8

4.454.98

5.375.11

5.58

2006 2007 2008 2009 2010

Foreign Tourist Arrivals (FTAs), 2006-10 (Figures in Million)

Source: Indian Tour Operator Promotion Council; Ministry of Tourism and Culture

India’s performance in tourism sector has been quite impressive over this decade.

Foreign Exchange Earning (FEEs), 2006-10 (Figures in $ Million)

8.63

10.7311.75 11.39

14.19

2006 2007 2008 2009 2010


• The number of domestic tourist visits increased to 705 million in 2010 compared to 650 million in 2009.

• However, the major share of domestic tourism include religious trips, family reunion and business travel trips from one place to another.

Domestic Tourists Statics

9

563

650705

527

382

2006 2007 2008 2009 2010E

Domestic Travelers, 2006-10(Figures in Million)

Source : Ministry of Tourism and Culture

Describing domestic tourism is the “backbone” of India Tourism Industry.


Tourism - Major Engines of Economic Growth

• Tourism is one of the major engines of economic growth in most parts of the world including India. – Since tourism does not fall under a single heading in the National Accounts

Statistics, its contribution has to be estimated. • According to the UN World Tourism Organization, tourism provides 6-7% of

the world’s total jobs directly and millions more indirectly through the multiplier effect in this sector.

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In absolute numbers, the total number of tourism jobs in the country increased from 38.6 million in 2002-03 to 49.8 million in 2007-08.

Tourism’s Contribution - GDP and Total Jobs, 2007-08(Figures in %)


Exports of Travel Services

• World exports of Travel Services was valued at $870 billion in 2009.

– In 2009, all commercial services sectors were affected by the global crisis but not to the same extent. Travel was the least impacted segment with a negative growth of 9% in 2009.

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• India is moving towards a services-dominated GDP. The share of Software and Business services are increasing.

• However, the cause of concern is the decline of exports of Travel Services from 21.5% in 2000-01 to 12.4% in 2009-10.

• India has not yet tapped the vast tourism potential.Source: Indian Economic Survey 2010-11

GNIE= Government not included elsewhereMiscellaneous includes Software Services, Business Services, Financial Services and Communication Services

Miscellaneous

TravelTransportation

GNIEInsurance

India’s Export of Services, 2000-01 and 2010-11(Figures in %)


National Tourism Policy 2002

• National Tourism Policy evolves around six broad areas such as Welcome (Swagat), Information (Suchana), Facilitation (Suvidha), Safety (Suraksha), Cooperation (Sahyog) and Infrastructure Development (Samrachana).

• The key aim of the ‘Safe and Honorable Tourism’ is to ensure that Indian tourism follows international standards of safe tourism practices, applicable to both tourists and local residents, i.e. local people and communities who may be impacted by tourism in some way.

– The Code has been formed to sensitize travellers and the travel industry, close all possibilities of exploitation, specifically of women and children, and make India a safe tourism destination.

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To strengthen the National Tourism Policy 2002’s critical pillar of Suraksha (Safety), the Government has adopted the Code of Conduct

for ‘Safe and Honorable Tourism’ on 1st July 2010.


Mega Tourism Projects

• Mega Tourism Projects are a judicious mix of cultural, heritage, spiritual, and eco tourism in order to give tourists a holistic experience.

– MoT is coordinating with with other Central Government ministries such as Railways, Civil Aviation, Road Transport & Highways, Food Processing and Urban Development as well as the concerned State Governments to achieve convergence and synergy so that the impact of investment in these destinations is maximized.

– Till date, the Government has identified 38 projects out of which 23 have been sanctioned.

• In order to meet the huge skill gap in the hospitality industry, the Government has put in place a multipronged strategy which includes strengthening and expanding the institutional infrastructure for training and education. Besides, steps are being taken for skill training of youth in the hospitality sector and providing skill certification.

Ministry of Tourism (MoT) is making concerted efforts for development of nationally and internationally important destinations and circuits

through Mega Tourism Projects.


Tourist Visa on Arrival (TVoA)• In order to promote tourism, Government of India launched a scheme of Tourist Visa on

Arrival (TVoA) in January 2010 on pilot basis.

– Citizens from 11 countries are cover under the TVOA scheme - Finland, Japan, Luxembourg, New Zealand, Singapore, Cambodia, Laos, Vietnam, Philippines, Myanmar and Indonesia.

– A total of 6,549 VoAs were issued in 2010, of which Singapore (1814), New Zealand (1944), Japan (1457) ,Finland (1263) and Luxembourg (71).

– In January 2011, a total of 790 VoAs were issued, of which New Zealand (242), Finland (156), Japan (155), Singapore (125), Philippines (98), Luxembourg (6), Cambodia (4), and Vietnam (4).

• Persons holding Diplomatic/ Official passports are not eligible to avail this facility.

• It is single entry visa a short period with a validity of 30 days strictly for the purpose of tourism and a tourist can come to India only twice a year on this visa. The fee for the visa on arrival is $ 60 (Sixty United States Dollars) or equivalent amount in Indian Rupees per passenger (including children).

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Inbound Tourists Vs. Outbound Tourists

• India is one of the fastest-growing outbound travel markets in the world and has witnessed a growth of over 20% over the last few years.

• India inbound tourism market is still in nascent stage. India’s share in international tourist arrivals is a paltry 0.60% in 2010.

• Outbound Indians are more than double the inbound tourists, though foreign exchange outgo due to outbound Indians is much less than the foreign exchange inflow from inbound tourists.

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India sends out more outbound tourists than it gets inbound ones, which is fairly unusual for an emerging economy

Source: Ministry of Tourism, Research and Markets

Inbound Vs. Outbound Tourists, 2006 - 10(Figures in million)


Tourism - Hotels and Restaurants

• The hotels sector comprises various forms of accommodation, namely star category hotels, heritage category hotels, timeshare resorts, apartment hotels, guest houses, and bed and breakfast establishments.

• Availability of good quality and affordable hotel rooms plays an important role in boosting the growth of tourism in the country. Presently there are 1593 classified hotels with a capacity of 95,087 rooms.

• Several studies have identified the demand-supply gap in hotel rooms in India; some of them have estimated a gap of 150,000 hotel rooms, of which 100,000 rooms are in the budget segment.

The hotels and restaurants sector is an important sub-component of the tourism sector.

2004-05 2007-08

2008-09 2009-10

Growth in Availability of Hotel Rooms(Figures in %)

The CAGR in the GDP contributed by the hotels and restaurants sector was

8.5% in 2004–05 to 2009–10.

Source: Economic Survey 2010-11


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Commonwealth Games 2010 (CWG)• India hosted the 19th Commonwealth Games in which 71 countries and territories

participated, were organized successfully by India. The event has significantly contributed to employment generation, infrastructure development, tourism inflow, and growth in national income.

• The Sports Ministry had undertaken a massive and unprecedented training programme for the top sportspersons of India, to prepare the Indian contingent for CWG 2010. A Scheme for Preparation of Indian Athletes for CWG 2010 was put in place for providing comprehensive and intensive training and exposure to Indian sportspersons, both domestically and abroad. – In this effort, 170 Indian and 30 foreign coaches and 78 supporting technical

personnel were involved.– This has resulted in the best-ever performance by India in any major, multi-

disciplinary sports event with a haul of 101 medals (38 gold, 27 silver, and 36 bronze), which is more than double the medals India won at CWG, Melbourne, 2006.

– This achievement placed India second in medals tally after Australia and ahead of major sporting countries such as England, Canada, and South Africa.


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Budget 2010-11 Vs. 2011-12 – Tourism Sector

• In order to boost investment in the tourism sector which has high employment potential, the government extended the benefit of investment linked deduction.

• Benefits of 100% investment linked tax deduction on capital expenditure (excluding land, goodwill and financial instrument) for building and operating a new hotel (commissioned after 1st April 2010) of two-star category and above, extended from select locations to across the country.

Budget 2010-11

Budget 2011-12

• Service tax on air conditioned restaurants possessing licenses to serve alcoholic beverages.

• Service tax on hotel accommodation, in excess of declared tariff of Rs. 1,000 per day.

• Revision in service tax rates on air travel― Hike in domestic and international

travel (economy class) by Rs. 50 and Rs. 250 respectively.

― Tax on domestic air travel (other than economy) at standard rate of 10% (in line with international travel).


Budget Impact on Hotels & Tourism

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• The levy of service tax on room tariffs / restaurants, the impact of which will be passed on to the end customer, is likely to have a detrimental impact on demand as it drives up the effective consumer cost. However, roll out of GST could neutralise this impact.

• The incremental tax on air travel will also push up the travel bill, the quantum of the same would be low. However coupled with impact of the increased fuel surcharge, higher travel cost could have a detrimental impact on airline traveller volumes.

Impact- Negative


Industry Reaction

• The hospitality sector has reacted strongly against the rise in service tax on hotel rooms and restaurant bars and demanding for a rollback.

• With this move, the total amount of tax on the room charges would amount to 17.5% in Kerala and Goa, compared to just 3% tax with other competing tourism destinations like Singapore, Malaysia and Indonesia, nearly six times higher.

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• Tour operators are also unhappy with the government for enhancing service tax on air travel.

• The rise in service tax on domestic economy class airfare and international economy class airfare would negatively impact air travel.


Financial and Fiscal Incentives

• A five-year tax holiday under the Income Tax Act for two, three, and four star category hotels located in all United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage sites (except Mumbai and Delhi) for hotels starting operations from 1st April 2008 to 31st March 2013.

• Other incentives include:

– Relaxation of external commercial borrowings (ECB) to reduce the liquidity crunch being faced by the hotel industry for setting up new hotel projects

– Allowing FDI up to 100% under the automatic route for the hotel and tourism-related industry

– Delinking credit for hotel projects from real estate by The Reserve Bank of India , thereby enabling hotel projects to avail of credit at relaxed norms and reduced interest rates.

The Government has announced various financial and fiscal incentives for the hospitality sector.


Registration – Tour Operators & Agencies

The government also has a voluntary scheme of granting approval to bonafide tour operators, travel agents, tourist transport operators, and adventure tour operators who satisfy certain criteria specified

in terms of turnover, infrastructure, and manpower.


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Ministry of Tourism

934.5 1000.01100.0

68.556.1

70.8

2009-10 2010-11 2011-12

Ministry of Tourism – Outlay, 2009-11(Figures in Rs. Million)

• The Ministry of Tourism planned to continue promotional efforts under the ‘Incredible India’ campaign in overseas and domestic markets.

• The Ministry also planned to lay emphasis on social awareness campaigns in the domestic market to sensitize the masses and various stakeholders to the importance of tourism.

• The key challenge is to establish India, into some traditional areas such as tourism and shipping where other countries have already established themselves.

10021,056

1,170

The outlay for the Ministry of Tourism is Rs. 11.7 billion ($2.6 billion), including Rs. 1.1 billion ($24 million) for North-East Region & Sikkim.


Physical Target 2010-11

• Product/Infrastructure Development for Destination and Circuits• Assistance for large Revenue Generating Projects• Domestic promotion and publicity including Market Development

Assistance, Assistance to Institutes of Hotel Management / Food Crafts Industry

• Capacity building for Service Providers• Incentives to Accommodation Infrastructure• Externally aided projects for development of Buddhist

Centers/Sights at Ajanta/Ellora and Buddhist Centre in Uttar Pradesh

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The total outlay for the scheme is towards:


Physical Target 2010-11

• GOI UNDP Endangerous Tourism Project• Market Research including 20 years perspective plan• Construction of Building for Indian Institute of Skiing and

Mountaineering at Gulmarg• Computerization and Information Technology• Creation of Land Bank for Hotels• 2.5% of the Annual Plan (2011-12) has been allocated for TSP

(Tribal Sub Plan) under the plan scheme “product/infrastructure development for Destinations and circuits”

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• The company is promoting various non-hotel properties - vacation homes, holiday homes, service apartments, villas and homestay, through a dynamic portal.

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About Research India

Research India was founded in 2007 by a team of management professionals, industry experts and

consultants.

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• Research India was formed with the objective of providing local intelligence, business, legal and administrative support to foreign individuals and companies in India.

• The key research areas of the company are Tourism & Travels, Urban Transportation and Education.

For more details, please visit: www.research-india.com or mail us at [email protected].

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Thank You!!!

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Jaspal Singh

Email: [email protected]: +91-11-2598 05380 / 6508027Mobile: +91-9958835533

Indian Tourism Sector and Union Budget 2011

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