Tourism is not only a growth engine but also an export growth engine and employment generator. According to the Economic Survey 2011-12 presented in Lok Sabha yesterday, the sector has capacity to create large-scale employment both direct and indirect, for diverse sections in society, from the most specialized to unskilled workforce.

It provides 6-7 per cent of the world’s total jobs directly and millions more indirectly through the multiplier effect as per the UN’s World Tourism Organization. Since tourism does not fall under a single heading in India’s National Accounts Statistics, its contribution has to be estimated. Its contribution to GDP and employment in 2007-08 was 5.92 per cent respectively as per Tourist Satellite Account Data. 

In India, the tourism sector has witnessed significant growth in recent years. During the period 2006 to 2011, the CAGRs of foreign tourist arrivals (FTA) and foreign exchange earnings (FEE) from tourism (in rupee terms) were 7.2 per cent and 14.7 per cent respectively. FTAs in India during 2010 were 5.78 million compared to 5.17 million during 2009, posting a growth of 11.8 per cent, much higher than the growth of 6.5 per cent for the world in 2010.

FEEs from tourism in rupee terms during 2010 were Rs. 64,889 crore compared to Rs. 54,960 crore during 2009 with a growth rate of 18.1 per cent. Despite the slowdown and recessionary trends in the economies of Europe and America, FTAs during 2011 were 6.29 million with a growth of 8.9 per cent over 2010 and FEEs in 2011 were Rs. 77,591 crore with a growth of 19.6 per cent.

In the case of outbound tourism, the number of Indian nationals’ departures fromIndia during 2010 was 12.99 million with a growth of 17.4 per cent for the year. Domestic tourism has also emerged as an important contributor to the sector providing much needed resilience. Domestic tourist visits during 2010 are estimated at 740.2 million, with a growth of 10.7 per cent. 

Hotels and restaurants is an important component of the tourism sector. As on 31 December 2011, there were 2,895 classified hotel having a capacity of 1,29,606 rooms in the country. Availability of good quality and affordable hotel rooms play an important role in boosting the growth of tourism in the country.

The share of the hotel and restaurant sector in overall economy increased from 1.46 per cent in 2004-05 to 1.53 per cent in 2008-09 and then decreased to 1.46 per cent in 2010-11. However, if the contribution of this sector only in the service sector is considered, its share decreased from 2.75 per cent in 2004-05 to 2.64 per cent in 2010-11 as other service sectors grew faster than this sector. It CAGR was 8.44 per cent during 2004-05 to 2009-10 and the growth rate in 2010-11 was 7.7 per cent. Health tourism, the new entrant in the sector is a niche area where India has good potential. 

As is natural, with the growth of this sector, components like air travel and hotel stay have been included under service tax. The Economic Survey 2010-11 has listed the major policy decisions taken in recent years. However, a lot more needs to be done to make India a major tourist destination. Some of the problem areas in this sector include the following. States impose luxury tax ranging from 5 per cent to 12.5 per cent.

In some cases, the luxury tax is applicable on printed room rates whereas actual hotel rates offered to guests are much lower. With a view to rationalizing luxury tax on hotels, the Government of India has requested the states to work towards rationality and uniformity of taxes so as to make their destinations more competitive.

They have been also requested to exempt room tariff below Rs. 2500 from luxury tax and charge luxury tax at a uniform rate of 4 per cent on actual tariff. Construction of hotels is primarily a private sector activity which is capital intensive and has a long gestation period.

A major constraint being faced by the hotel industry in addition to the high cost and limited availability of land is the procurement or multiple clearances/approvals required from Central and State Government agencies for hotel projects. Varying from state to state, in some cases as many as 65 clearances/approvals are required for hotel projects.

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