Indian Tourism – Ready To Exhale?

In the 2001 Independence Day address, the prime minister for the first time alluded to tourism as a key driver of our economy. How far has Indian tourism travelled since then? In which direction is it headed? Bhisham Mansukhani follows the ‘real’ progress

In the wake of World Tourism Day, Indian tourism is on the brink of a historic take-off.

There is recognition and growing outlays in consecutive Union Budgets in addition to infrastructure development allocations and a National Tourism Policy with an intrinsic focus on partnering the private sector. Has the industry had it this good? The Tenth Plan devoted an entire chapter to tourism, recognising its ‘vast employment generating potential’. The plan also betrayed an allocation of Rs 2,900 crore – 0.72 per cent of the total outlay which was a substantial improvement over the 0.16 per cent average of the earlier plans. This potential is being sized up where it really counts – on a state level. States like Maharashtra and the recently formed Chhattisgarh have seen huge growths in budget outlay and there have been a stream of partnerships with the private sector and an ongoing process of professionalisation. This may not necessarily reflect in cold statistics – India’s share of global tourism is a familiar pittance at 0.38 per cent while its share of global domestic tourism is far grander at 4.6 per cent.

The World Travel &Tourism Council’s (WTTC) closure is perhaps the biggest domestic setback recently to spoil a snowballing party. Blamed on a non-performance specific approach and high operational cost, WTTC’s demise gave way to a sub-committee. WTTC did leave some valuable tourism research behind that sets the course for what is now a strong growth oriented industry. To take this present moment into proper perspective it's relevant to rewind a bit.

In August 2001, the travel trade let slip its worries over the then contentious issues of airline commission rates under the joy of being publicly recognised by the prime minister in his Independence Day address to the nation. Atal Behari Vajpayee had said that tourism would be perceived as a prime driver of the nation’s economy while committing to formulate a progressive National Tourism Policy before the end of that year. It’s been more than two years since then – two years that have borne terror attacks, a haemorrhaging virus contagion and domestic and cross border political unrest. There have also been two unusually cognisant Union Budgets, private sector and state tourism department initiatives. Eventful both ways for India’s inbound.

Promises...promises...

Vajpayee’s promises in the 2001 Independence Day address also announced the formation of a National Task Force for the all round development of the tourism industry in India as well as plans to constitute a tourism advisory council "in order to promote continuous interaction among various contributors to the successful implementation of the forthcoming tourism policy". Dubbing 2002 as the ‘year of implementation’ he said the government would draft a new national tourism policy by the year-end. The policy eventually came in the middle of 2002. Vajpayee also exhorted the rationalising of taxes levied on the hospitality sector blaming "insufficient coordination among tourism corporations of neighbouring states, and the complexity and multiplicity of taxes, which have a cascading effect on the ultimate price that the tourist has to pay". Much happened that year. Sixteen countries were shortlisted for visas on arrival and the Centre roped in domestic hospitality majors Taj, Oberoi, ITC Hotels, Thomas Cook, Kuoni and Sita Travels to launch a concerted international marketing campaign called the ‘Experience India Society’.

A lot of the exuberance was wasted. Visas on arrival were abruptly put on ice while the tourism advisory council and a delayed tourism policy were met with widespread scepticism. Two Union Budgets and two finance ministers couldn’t impress upon states to coordinate the way the PM had desired. So what of India Inc’s key economic driver?

Budget doubles

The Union Budgets still figure as the largest watersheds and the most tangible evidence of a knee-jerk Central interest in tourism. Tourism received an outlay of Rs 225 crore in 2002, a historic 50 per cent increase over 2001’s outlay. In the last of his encouraging budgets, Yashwant Sinha also gave the industry the following reasons to cheer:

• He announced plans for the development of six tourism circuits with a special concentration on the development of Hampi as an international tourist destination.
• Hotels were given another year as service tax holiday.
• Customs duty was rationalised to 182 per cent from 210 per cent.
• Rs 1000 crore was allocated for infrastructural development
• Section 80HHD of the Income Tax Act, which deals with foreign exchange earnings, was amended so that benefits applicable to Section 80HHC and 80HHE would now also be applicable to 80HHD. As a result, hotels would get an exemption of 25 per cent instead of 20 per cent for foreign exchange earnings.
• A 50 per cent deduction on taxes for development of convention centres, tax holidays for development of entertainment centres and multiplexes in rural areas.

Tourism minister Jagmohan wasn’t being prophetic by betraying optimism for a grander outlay in the 2003 budget given the developmental work done by the Ministry of Tourism (MoT). He was confident that reports of many tourism projects thwarted by a lack of funds would warrant a larger allocation. Right, he was. The budget allocation was enhanced by Rs 100 crore. Hospitality had a second budget to cheer about with the abolition of Hotel Expenditure Tax (HET) and the incentivising of infrastructure financing for the sector but the travel trade per se felt more needed to be done.

Leave Travel Concession (LTC) was re-introduced, opening up a potentially renewed stream of government and public sector employees as travellers. LTC had been banned two years ago, sparking a sustained lobby from associations like Indian Association of Tour Operators (IATO), Travel Agents Association of India (TAAI) and Association of Domestic Tour Operators of India (ADTOI) that projected a potential 25 per cent growth in domestic tourism if LTC were re-introduced. Recognition as being ‘amongst the most effective employment creating sectors’ didn’t hurt the sector’s reputation either. On the state-front, the Centre granted a 10-year tax holiday for industrial activities in Uttaranchal, Sikkim, Himachal Pradesh and the north-east states.

Infrastructure development and road accessibility may well see a renaissance with a Rs 60,000 crore allocation for a network of roads spanning 10,000 kms, National Rail Vikas Yojana projects worth Rs 8,000 crore, two international convention centres and Delhi and Mumbai airport modernisation. Summing up the trade’s response to this year’s Union Budget, Subhash Goyal commented, "I would not call it a pro-tourism Budget as several demands of the tourism industry and its associations, such as infrastructure status for tourism, withdrawal of service tax, abolition of tax on ATF have not been met. It is unfortunate that instead of withdrawing the service tax it has been increased from five to eight per cent instead."

The state of States

The PM’s direct poke at state tourism departments for their lack of coordination may have been responsible for what has been a remarkable buffet of initiatives bent on a forward looking and synergistic approach and it’s not just the big three (read Kerala, Goa and Rajasthan) that have led the decentralised brigade.

• MTDC broke new grounds in the cross-selling concept by appealing to its counterparts in West Bengal, Rajasthan, Karnataka, Kerala, Delhi, Uttar Pradesh, Chhattisgarh and Madhya Pradesh to come together to promote tourism. Further, the state government gave tourism in the state the desired shot in the arm – an industry status, under the ambit of Maharashtra Infrastructure Development and Support Act (MIDAS). The act will empower MTDC as a Special Planning Authority under which it can procure and provide land available at various tourism estates without having it to be approved from the Maharashtra Industrial Development Corporation (MIDC).
• Andhra Pradesh recently hosted a Southern Tourism Minister’s Summit in Hyderabad. The conference was attended by most of the southern tourism ministers i.e. Andhra Pradesh, Kerala and Pondicherry along with senior tourism officers from the union territories of Andaman Nicobar and Lakshadweep.
• Kerala Tourism Development Corporation (KTDC) continues to juggernaut as India’s leading tourism brand, now tapping eco-tourism with a scheme, Eco-Kerala. The scheme attempts to evolve a set of guidelines to help each sub-sector within the tourism industry to be more eco-friendly. The first phase of the scheme will be implemented in the hospitality sector in the state.
• Uttar Pradesh has initiated new plans to push its tourism aggressively that include streamlining various measures to enhance its tourism products. The state has identified a few circuits, which would be developed as major tourist attractions and cultural zones. Bundelkhand, Braj and Buddhist circuits have been accorded the top priority. An investment of Rs 77 crore mainly for the development of infrastructure has already been invested in the circuit plan.
• Haryana Tourism Corporation (HTC) is one of the boards that has warmed up to the MoT’s proposal of a 20-year plan. The state will appoint consultants to conduct an in-depth research of the state with the purpose of identifying promising tourism destinations in the region. Significantly, the consultation fees will be borne by the government of India, without passing the burden onto HTC. Other states have also been similarly advised to appoint consultants to effectively implement development plans.
• Rajasthan isn’t far behind, bettering its opposite numbers with an effort to have its painted capital, Jaipur, recognised as a heritage city for which it has already approached UNESCO. A Jaipur-Delhi six-lane driveway and an international airport on the anvil bring the element of accessibility to this combination of culture and architecture. The state has also initiated an urban infrastructure development project undertaken through Asian Development Bank (ADB) costing Rs 15,300 crore.
• Tamil Nadu has also identified specific tourist products to focus on and develop in 2003-04. The current budget provision for the tourism sector is at an all-time high of Rs 26.79 crore. It has identified Indian medicine as an attraction to lengthen tourist stays and plans on opening rejuvenation centres in destinations like Kolli Hills, Courtallam and Mamallapuram.
• Moving beyond its long flaunted troika of sun, sand and surf, Goa has earmarked land for the construction of its first IT savvy beach resort. The 44-acre plot, on Goa’s northern beach of Arambol is up for construction bids. The Indian government, in its effort to promote Goa as a prime destination to the overseas market, has allotted the state government Rs 2.5 crore for a special overseas campaign package and enhancement of its tourist circuit.

Flight sans wings?

The spanner in the works of this watershed that could be the inbound travel trade is a certain sector that lacks a policy and suffers maximum government control. In its ebullient rush to give tourism its due, the government forgot to remember that aviation is an inseperable part of tourism.

No Room For More

Political aversion to an open-sky policy will continue to harm tourism as any hope of growth is killed off by the inexplicable unavailability of seats. Either the MOCA or the power-that-be, above it, refuses to see the logic of a parity between inbound growth and airline seats.

The situation is so dire – agents abroad cannot promote to individuals and groups that need seats on short notice. For instance, a certain tour operator from Austria was refused seats on Austrian Airlines in the last week of December 2002. This basically translated into a loss of valuable inbound to the country. Those tourists likely opted for a destination like China, for which flights are freely available. The knee-jerk open sky policy which the aviation ministry declares during the peak periods has at best evinced sceptism and blunt refusal by carriers to fall in line.

The government's obstinate stance on deregualtion Indian skies traces back to a single conspiracy theory – the flag carrier. In fact such is the frustration of the tourism industry on this issue that voices within the government are turning on it. Amitabh Kant, Joint Secretary, Tourism, said at last year's Aviation Summit, "Breaking open the sky is important to achieve a breakthrough in tourism. We are targeting five million tourists but we do not have direct connection with many potential source countries". It's all come to nothing however as K Roy Paul, secretary civil aviation summed it up at the same summit, "True, tourism requires connectivity. But we need to liberalise in a way that our national carrier is not sacrificed."

Won't let go

Air-India and Indian Airlines have seen their privatisation hopes take-off, soar, crash and burn and evince no surprise. On April 15, 2003, the final nail in the divestment coffin was hammered as India's Cabinet withdrew both airlines from the list of 35 companies being offered for sale. The reason given for closing the process was that the carriers couldn't attract satisfactory bids. Disinvestment minister Arun Shourie went on record, saying that "personal interests have been camouflaged by repeating cliched rhetorics like national interest, security, monopoly, etc. Both airlines are basically considered private property by free-bee happy politicians. Ministers and a few top bureaucrats allegedly dole out free tickets to relatives and friends, which are accounted under 'commercial requirement'. Privatisation would mean 'pay and travel' read unpalatable. There's more. Last year, when Air-India spent Rs 45 crore to change its business class seats to 180 degree slipperettes, a certain few were left richer by a few lakh and crore of rupees. Disinvestment would have trigerred a historic turn of events not only for the airlines themselves but in terms of bilaterals, go halfway towards the ideal world of open Indian skies. None of that will happen in the forseeable future. There are plenty reasons to explains why. None of them are consolation.

Air-India (A-I) on its part deserves a few brownie points for trying with a dignified indifference to its cliche of government protectionism. The Rs 5,000 crore airline was set back by SARS earlier this year and a pilots' stir as a direct consequence. These weren't the only factors to ruin A-I's hope of a profit. The absence of a replenished, modern fleet could see the airline's whittling 20 per cent of the outbound market, whittle further. Though Air-India has drawn up a plan to buy 17 planes worth Rs 13,000 crore, central aid though in terms of fleet expansion is nigh. Its 28 aircraft fly to full capacity virtually all year round and a curb on expansion points only to a loss of potential revenue which international airlines are happily lapping up. Air-India's purchase proposals remain stuck at various bureaucratic stratas and the only certainity in an otherwise status quo is a successful polical ward against disinvestment.

Needs fuel

According to a Bombay Chamber of Commerce and Industry report, the average sales tax rates on Aviation Turbine Fuel (ATF) range around 30 per cent of the sale price. Additionally, with excise duty rates, ATF prices, particularly for domestic carriers is 2.5 times higher than the rates applicable globally. This takes its toll on inbound tourism, inhibiting inland air travel due to dearer airfares as well as dissuading international airlines to tank up on fuel in India, costing the exchequer valuable foreign exhange that goes to hubs like Singapore and Dubai. The report recommends that ATF sale to airlines should be exempt from excise duty and the Central Sales Tax Act should be amended to cover ATF as a declared good, thereby capping its levy to four per cent across the board. The report estimated that a rationalisation of sales tax and excise levy on ATF would reduce airfares by 25 per cent. Other than an FM exhort to states to rationalise sales tax on ATF, the issue languors in limbo.

Home Ministry Sits On

Another issue that has dogged inbound tourism again lies in the ambit of the usual suspect – the government. In this context, it’s L K Advani's home ministry that is a barrier to India's self-confessed modest target of five million tourists can only seem in sight. Visa on arrival

is under its purview and lies in limbo. The Home Ministry in 2001 had agreed on principle to announce visa on arrival for 16 countries. The plan fell through because of mounting tension at the Indo-Pak border and terrorist attacks on the Parliament.

Pradip Madhavji predicts at least a 20 per cent spurt in inbound tourism as a direct result of visas being offered on arrival. Citing the upcoming concept of intra-regional travel, one tour operator suggests that the government can offer visas on arrival to SAARC countries. This, given that China gets more than 80 per cent tourists from Hong Kong, while Malaysia has maximum visitors from Singapore and Thailand, could immediately increase tourist inflow. Jagmohan had raised the issue at a cabinet meeting in the past but received no response from the Home Ministry. The government's stance on home security, one suspects, is orthodox and boxed up -- not one that the travel trade can thaw into.

Conclusion

With consecutive calamities like SARS and the US-led invasion of Iraq now behind it, better times for Indian inbound are still not a given. Yet, there are signs of poetic justice in the offing that is if a WTTC projection materialises. Its third satellite accounting research forecasts a 7.4 per cent real growth for Indian tourism. It further expects the country's tourism industry to generate 2 per cent of GDP and 11,093,100 jobs. The tourism and travel economy is expected to total 4.8 per cent of GDP and 23,839,800 jobs. However, the real growth in the travel and tourism industry's GDP has been 6.1 per cent. The Tenth Plan, mentioned earlier, recognised WTTC's criticism that India is one of the lowest spenders on tourism – 153rd out of 160 countries. The government's approach however has been a flawed one. Concentrating on infrastructure development and incentivising hospitality but refusing to deregulate Indian skies, is the government then merely content with over 230 million domestic tourists, a figure that is however not without discrepancy. On the eve of World Tourism Day, the proponents of a certain, key economic driver can only hope against it. One of its proponents is in fact in a position to do something about it.