SWOT ANALYSIS

By: Elizabeth Crusan

STRENGTHS:

1. Dynamism in the Tourism and Hospitality industries.

2. Continuous inflow of Tourists in the country.
3. India’s rich cultural heritage.
4. Low labour costs as against the world standards.

WEAKNESSES:

1. Regional imbalance of hotels.

2. Capital intensive
3. Labour intensive.
4. High taxes and tariffs for every service.
5. Disparity in taxes charged by various States.
6. Lack of aggressive and effective marketing and promotional strategies.
7. Land availability is a major hurdle for any hotel project. Release of land at prime locations is
difficult because large tracts of land in such locations come under the Government’s control.
8. The prohibitive cost of power in India.
9. High government duty on power tariffs.

OPPORTUNITIES:

1. Influx of MNCs in the country after liberalization. This has led to a flurry of industrial activity
in the country and thus an increased demand for the hotel.
2. Declaration of the Hotel Industry as a “High Priority Industry”.
3. Government policy of positioning hotel and other tourism related activities in the private
sector.
4. Various incentives/concessions extended by the Government.
5. Approval of the hotel by the Department of Tourism. This approval constitutes a certificate of
suitability of the hotel for occupancy by tourists, both foreign and domestic.
6. Higher interest subsidy for hotel projects that are set up in special areas and specified
destinations as per the Government.
7. Introduction of the Capital Subsidy scheme for the Heritage class of hotels.
8. Declaration of the hotel and tourism industry as a high priority industry for foreign
investment.
9. Liberalization of imports and concessional customs duty.

THREATS:

1. Significant over capacity in places like Madras and Goa.

2. Dual pricing is a major deterrent (Indian and Foreign tourists).
3. The continuous change of Governments over the past years has led to a slowdown in both
foreign investment and business travel.
4. High capital costs combined with long gestation periods.
5. Inadequate infrastructure development in terms of international airports, roads,
communication facilities, cost of communication etc.

6. Competition from international hotel chains like Le Meridien, Marriott International, Radisson
(Carlson) and Regent who have evinced interest in setting up hotels by taking up equity stakes in
hotel projects.
7. Marginal decline in tourist arrivals due to devaluation of the Asian currencies, which have
made these countries cheaper than India.

PESTEL ANALYSIS

Social:
Hotel was always looked upon as something that led to the destruction of the social fabric of a
place. The more the amount of outside people coming into a place, the more the perceived risk of
that place losing its identity. A good example is Goa. From the late 60's to the early 80's when
the Hippy culture was at its height, Goa was a haven for such hippies. Here they came in
thousands and changed the whole culture of the state. This had a ripple effect on the country.
People became cautious, especially of the international tourists. Whenever a certain place
became famous, the example of Goa was cited to discourage the inflow of international tourists.
However some places such as Kerala and Rajasthan have been able to strike a balance between
their own culture and the demands of the international tourists and have profited handsomely in
the bargain. People are now adopting themselves to the fact that tourism pays and it can be a
major source of income for them.
In addition, tourism as a form of recreation has really caught on. People themselves have started
traveling and are willing to travel to a place that is out of the way and exotic. While traditionally
traveling on a holiday meant going to a hill station or a beach, now people are willing to go in for
adventure tourism and also visit places that might be exotic and cannot really be called
hospitable. For example, now places like Leh and Lakshwadeep are mentioned in the same
breath as Goa or Kashmir.

Legal:
The laws that govern the industry are not the same in all the parts of the country. Many of the
laws that are in effect are old and archaic, and not geared to meet the challenges of the 21st
century.

With respect to taxation, the World Travel and Tourism Council has observed that
“Tax paid by tourists in India is the highest in the world. Indian hotels charge about 40% tax
compared to other Asian countries where it varies between 3% and 6%".
Such high taxation renders the tourism sector as a whole uncompetitive. Further, there is
considerable disparity between state level taxes, especially on food and beverages. In fact, the
sales tax on imported beverages varies widely, e.g. 63% in Karnataka to 28.75% in West Bengal.

With respect to Foreign Investment in any tourism related venture, clearance must be obtained
from the Central government (RBI or Foreign Investment Promotion Board). 51% foreign equity
is automatically approved subject to meeting certain prescribed criteria, including having a
capital base proposal below US $143 million (Rs. 6 billion). In the case of NRIs, 100% foreign
equity is automatically approved. Foreign equity holding above 51 percent are possible, but are
subject to FIPB approval. It is to be noted that the Ministry of Industry provides final clearance
of FIPB approvals.
Dividends on such investments are repatriable.
The National Policy on Tourism lays emphasis on sustainable development of tourism. In
accordance, the Government has brought out a comprehensive Eco Tourism Policy and
Guidelines. There are several Acts and laws, which ensure sustainable tourism. These are the
Wild Life Protection Act 1972, the Environment (Protection) Act 1986, and Prevention of
Cruelty to Animals Act 1986. These do not set aside any specific area for tourism, but such areas
have to be identified by the State Governments and obtain the required approvals/relaxations.
Eco-tourism policies and Guidelines have been formulated by the Government in consultation
with the industry and are being implemented on a voluntary basis.
Economic:
The tourism industry not unlike the other industries grows with the increase in the spending of
the people. The more the people spend the more the industry grows. The spending power of the
people has been increasing in the country and all over the world. Since we are concentrating on
the international tourists, the large increase in the spending power in most developed countries
has left a large amount of idle cash in their hands. This has led to a tourism boom the world over
and India has been no exception. There have been more people coming into the country with
more cash than ever before. This has lead to an increase in the demand for better hotels. People
who previously used to come to the country on a shoestring budget and hunt around for the
cheapest accommodation can now afford to go in for luxury hotels. This has led to an increase in
the number of hotels in the country. However, an increase in spending does not only limit itself
to accommodation. The increase in the spending is also evident in the increase in the number of
people traveling by air. Even the number domestic tourists traveling by air has dramatically gone
up.

Political:
The political factors are the main driving force of the industry. The Indian tourism industry is
built on the backbone of Government support and the industry cannot sustain itself without it.
The various archaeological sites and the places of historical importance, the roads and the
railways are all in the hands of the Government. All the support services like the hotel industry,
the airlines industry and the tourist operators to name some are heavily dependent on the support
and the cooperation of the Government.
The major reason as to why tourists visit India is for the vast and rich heritage that our country
has. That is under the control of the Government, through the Archaeological Survey of India.
Any policy change that comes into force can have dramatic effect on the way the industry
players perform. For example, the Government charges high rates of taxes on the luxury and the
star category hotels and this has always been a cause of disagreement between the hotel
associations and the Government. There are many areas where the growth of tourism has not
been rapid or has seen dramatic fall because the political environment has not been conducive.
Examples are the North East for the former and Kashmir for the latter. The neglect of the
Government in developing the North-East has led to a situation where there is practically no
tourism in the seven states.

Similarly, the political turmoil in the state of Kashmir and now in Gujarat has caused a virtual
decimation of the flourishing tourism industry. However, there has been a change in many of the
policies of the Government with regard to the tourism industry. The hotel industry has been
getting many incentives and many State Governments are encouraging the growth of major
hotels in their states. After years of tight control over airport infrastructure, Government has
finally taken the decision to privatize the airports.

Technological:
Although technology does not seem to be a major influence at first glance, it plays a major part
in the promotion of a place. Better communication facilities are one of the first prerequisites for
growth in the inflow of tourists. This has been made possible with technology. Improved
technology in the field of communication at cheaper costs has resulted in many remote and
inaccessible areas of the country getting connected to the rest of the world. This connectivity has
made these places visible to the world. Better communication means access to media. And that is
very important if any place wants to be on the world tourist map.
Similarly better transportation facilities have lead to a dramatic increase in the number of tourists
visiting any particular place. The presence of an airport and the availability of frequent flights are
a great convenience to any traveler.