Macroeconomic Analysis of the

Hospitality Industry
FY-E
BATCH 2021-22

NAME ROLL NUMBER PRN

1) Mehul Aggarwal 1467 21020621456

2) Diya Wadhwa 1423 21020621151
3) Saksham Singhal 1461 21020621333
4) Abir Sehgal 1401 21020621042
5) Hitansh Doshi 1428 21020621171
7) Tanya Surana 1479 21020621402

Project Based on Experiential Learning

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 Group Members and Diary Entries

Name Roll No. PRN Diary Entries

Mehul Aggarwal 1467 21020621456 18/05-(30m) Research on the topic
Hospitality Industry.
20/05- (15m) Read and found data
on National Income.
22/05- (20m) Collected all the
required data.
24/05-(45m) Introduction to the
Hospitality Industry.
25/05- (1h) National Income
(macroeconomic indicator).
Diya Wadhwa 1423 21020621151 19/05(50)-Research on the
hospitality sector and then choosing
a indicator
21/05(1.5 hr)-Looked for my topic
on various sites and then went
through some research papers as
well.
23/5(30 min)-Did some more
research on my topic and then
posted the data.
26/5(1 hr)-Finalised the data which
was to be used and then made some
changes in the google doc and even
made the index and the cover page.
Abir Sehgal 1401 21020621042 19/05 (1h) - Research on the
hospitality industry pre-COVID-19
and the current situation.
20/05 (1h)- Looked for
information on G.D.P.
(macroeconomic indicator) along
with relevant graphs.
22/05 (45m) - Added the final data
along with the graphs to the final
document and wrote the GDP
analysis.
25/05 (45m) - Wrote the
conclusion and helped in
formatting.

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Hitansh 1428 21020621171 19/05 (1.5h)- Research on Rate of
Doshi Unemployment (macroeconomic
indicator) due to the COVID-19
pandemic.
21/05 (45m)- Collected required
data and statistics from verified
secondary resources.
23/05 (1h)- Added final data
regarding rate of unemployment
and job loss, including graphs, to
the final document.
24/05 (30m)- Wrote the
introduction to industry and
analysis.
Saksham Singhal 1461 21020621333 Fiscal Policy
20/5-(1h) Research about our topic
Hospitality Industry in detail.
22/5- (45m) Found & Read
materials on fiscal policy.
23-/5- (15m) Collected all the
required data on fiscal policy.
24/5-(1h) Completed working on
data & analysis.
26/5-(15m) Compiled the project.
Tanya Surana 1479 21020621402 18/05-(2h)
Inflation(macroeconomic indicator)
related research.
20/05-(1h)
Added the research related to
inflation and found graphs.
25/05-(2h)
Conducted complete analysis of all
macroeconomic indicators and
figured out their rankings and
reasoning behind rankings of
importance.
26/05(.5h)
Compiled the whole project.

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 INDEX

TOPIC PAGE NO.

Introduction 5
Macroeconomic Indicators Chosen For The Project 6-7

Data 8-12
Analysis 13
Conclusion 14
References 15

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 Introduction
The hospitality industry is a forward-thinking industry. It offers intriguing and limitless
possibilities. It is also regarded as one of the earliest companies in human history. People
visit areas for a variety of reasons, including job and recreation. Because individuals
typically enjoy it with their friends or family, the hotel industry thrives.

There are three primary capabilities in the company. This comprises management, the
kitchen, and labourers. When these three capacities are correctly handled, they contribute
to excellent hospitality management.

This industry may alternatively be separated into two parts: entertainment (clubs and
bars) and lodging (hotels and motels). Resorts, motels, hostels, paid guest lodging,
campsites, and hotels are all examples of accommodation. Various restaurants, fast
meals, and nightclubs are included in the clubs and bars area. Tourism support
mechanisms are sometimes included in the industry. This covers a variety of business
endeavours such as aircraft cabin crew and travel agents.

Managing and marketing these services to individuals while maintaining high quality
is a difficult task. For the hospitality business, technology and globalisation have
made it necessary. It is a difficult issue that must be addressed in order to manage
several components like as operations, human resources, and marketing.
The Hospitality Industry is many times accountable for employing individuals
worldwide.
The hospitality sector encompasses five major categories: hotel and accommodation,
food and beverage, travel and tourism, entertainment, and, to some extent,
transportation. The current worldwide epidemic has profoundly transformed the
economy. The hotel business was one of the most hit by the COVID-19 epidemic,
and it suffered a lot of consequences as a result of the nearly full shutdown of all
tourism activity.

In comparison to other businesses that thrived during the pandemic, such as the IT
sector and the pharmaceutical and healthcare industries, the hotel industry suffered a
significant setback owing to its inability to maintain normal remote operations.

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 Macroeconomic Indicators Chosen For The Project
1. GDP
GDP as a macroeconomic indicator depicts the total monetary value of all the finished goods
and services that are produced within the country during a specific period of time. It is a very
important economic factor for the hospitality industry as India is a huge market for travel and
tourism due to its diversity in culture and has a lot to offer in the arenas of entertainment, food
etc. The reason we added GDP as an indicator in our project was because in the recent years
there have been a lot of remarkable developments in this sector.

2. Inflation
When it comes to macroeconomic indicators, inflation is one of the first thoughts to come to
many people’s minds. Inflation is a phenomenon in economics where prices of most goods and
services increase over a period of time. This causes singular units of currency to be worth less
and less especially in the case of hyperinflation. One recent example of hyper inflation which
occurred from 2008-2009 is zimbabwe. At the time, Zimbabwe had an inflation rate of 79.6
billion percent(to put this into perspective, the U.S has a rate of 2.1%); this incomprehensible
figure caused ruin in the Zimbabwe economy where prices for everything doubled day by day
and at one point a single loaf of bread costed close to 550 million zimbabwean dollars. This was
caused by many factors and eventually led to the government of zimbabwe to abandon their
currency and accept foreign currencies for transactions. This example alone shows how
important inflation is and why it is an important factor to take into consideration during this
study.

3. Rate of Unemployment
Rate of Unemployment is defined as the specific percentage of the workforce that is not
currently employed. Unemployment rate is commonly known as a ‘lagging indicator’ which
means that it generally rises or falls with changes in economic conditions; such as the current
pandemic scenario.

We chose this particular indicator in our project because it justified a large amount of growth in
the hospitality industry for previous financial years. In the years before the onset of the ongoing
pandemic, there was a clear indication of a reduction in the hospitality industry’s
unemployment rate.

4. Fiscal Policy
Fiscal policy is the use of taxation, public expenditure and government spending by the
government to boost the growth of the country’s economy. It is mostly done when there is
high unemployment and recession.

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We chose this macroeconomic indicator in our project because the fiscal deficit was high in the
year 2019-20. There were two reasons for the high fiscal deficit, pandemic and middle-income
trap. Talking about fiscal deficit is very important as it can affect the growth of the country as
well as it can impact the price stability and inflation of the country.

5. Money Supply

The money supply is all the currency and other liquid instruments in a country's economy on the
date measured. The money supply roughly includes both cash and deposits that can be used
almost as easily as cash. Governments issue paper currency and coins through some combination
of their central banks and treasuries.

6. National Income

National income means the value of goods and services produced by a country during a financial
year. Thus, it is the net result of all economic activities of any country during a period of one
year and is valued in terms of money. National income is an uncertain term and is often used
interchangeably with the national dividend, national output, and national expenditure.

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 Data
1. GDP
Research says that there were 39 million jobs created in tourism in the financial year 2020
accounting to 8% of the total employment in our country India. Adding to this, the total
contribution by this sector to India's GDP is anticipated to increase from Rs. 15.24 lakh crore in
2017 to Rs. 32.05 lakh crore in 2028 which is literally the double of the existing scenario.

It was found that the sole contribution of the hospitality sector towards the GDP in 2019 was
7.5 per cent and it would only grow from hereon as people always need a break - whether it's to
try out a new restaurant or have a weekend getaway.

2. Inflation
After the economic slowdown in 2008-09, the Indian economy was suffering from its policy
paralysis under the second UPA regime. Around that time, the hospitality industry was going
through a low, where RevPAR (Revenue per available room) witnessed a negative growth rate
of
-6.7%. Afterwards in 2014, with a new majority government under NDA, the economy started
displaying signs of recovery with an increasing rate of inflation implying a growth in consumer
demand. Hospitality industry also entered its recovery phase at the same time on the back of
growing demand and declining growth in new hotel supply.
A few years later in 2018, it was reported that while the economies everywhere were doing good,
inflation was still scary, specifically to the hotel industry. Inflation poses a profit threat to
hospitality industries as along with inflation comes a rise in labour costs and as with the
hospitality industry this category of costs accounts for a substantial amount of costs. When
inflation occurs and single units of currency decline in value, most employees ask for more
money and so along with the other effects of inflation, the hoteling industry faces a decline in
profits.

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 3. Unemployment Rates
In terms of employment, the travel and tourism sector showed a steady incline over the course of
2014 to 2019. For example, in the financial year of 2019, India’s travel and tourism sector
provided employment to approximately 87 million people, which was a significant increase from
the 80.63 million people employed in the sector in 2018. However, the COVID-19 pandemic
significantly offset the budding growth rate; with a current estimated loss of 5.5 million jobs in
the travel and tourism sector. The overall expected job loss rate in the tourism and hospitality
sector due to the pandemic is expected to reach a whopping 38 million people.

However, as restrictions on the hospitality sector slowly began to decrease, rates of

unemployment did as well. The travel and tourism sector managed to employ 20.7 million people
during the December 2020 financial quarter.

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 4. Fiscal Policy
Hospitality Industries like Travel, Tourism faced a huge loss of Rs 15 trillion and put up to 40
million jobs at risk due to Covid-19 as there were travel restrictions in several places. The
Federation of Associations in Indian Tourism & Hospitality (FAITH) have requested a proposal
to the government for reduction in GST rate, tax benefits and a dedicated fund for the sector.

To save the Hospitality Industry from coming collapse, the Federation of Hotel and Restaurant
Associations of India (FHRAI) also requested from the government for several fiscal measures.
Due to the impact of the Covid-19, the hotel sector has taken a hit of over Rs 1.30 lakh crore in
revenue for the year 2020-221. They have also demanded a waiver of property tax, water and
electricity charges for the lockdown period from the government.

In this graph, it clearly shows in 2019-20 the fiscal deficit in India was 4.6% However, in
2020-21 because of a shortfall in revenue and lockdown the fiscal policy shot up very high to
9.5%.

5. Money Supply
Revenue from the Indian hotel sector at FY 2019-20 stood at Rs 1.82 lakh crore. On average,
at FY 2020-21, approximately 75 percent of sector revenue has been eliminated. That’s more
than the Rs 1.30 lakh crore income.

Businesses continue to close and non-performing assets (NPAs) are growing.

Since March 2020, the industry has struggled to manage its legal obligations and high costs.
Interest repayment is not just a difficult thing but it is not possible under the worst
economic conditions due to current growth.

Government must provide a specific sector policy that can mitigate all negative financial
implications, including debt accumulated or added to banks, financial institutions or any other
entities, taking into account current conditions and their long-term effects.

The government without delay must make the necessary arrangements to draw legal cases into
the hospitality sector.

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He called on the government to compensate the workers and their families for the loss of
money, which would also help bring money to the market and lead to better economic
performance.

In line with the three-year extension the industry will require the full payment of interest on
loans from March 2020 until the time the business is normal. As this sector requires more staff,
a targeted policy is needed to support the tourism sector.

The above concerns are mainly on the demand side. However, as mentioned earlier, the
problem of COVID-19 is also a supply problem. This is especially evident in the tourism and
tourism industry. Hotels, restaurants, spas, therapists, etc., are requested to submit a number of
privacy adjustments that increase the provider's workload which may result in a loss that will
have to be compensated by the loan. In summary, the situation in the industry is very critical.

6. National Income

The hospitality industry actually relies on various factors such as aviation, entertainment,
transportation as well. The relationship between all these sectors should be strengthened in
order to grow and develop.

The hospitality sector mainly has a potential to be the main driving force behind the growth of
the nation’s economy because of the country's vast tourism potential. . For the same, it requires
the correct amount of incentives as well as support from the government. It should not be limited
only to the luxury or ultra-luxury segments. The hospitality sector’s growth and contributions to
the GDP will continue to be significantly higher than other sectors of the economy.

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The COVID-19 pandemic shut down the world's largest economy and confronted the
hospitality industry with an unprecedented challenge. The hospitality sector in India which was
previously growing significantly was one of the worst-hit sectors of the economy and
contracted to 47%.

In India, 53% of the total leading hotel operators had to shut down more than 80% of their
inventory during the nation-wide lockdown period. Even today, over 60% of the hoteliers
believe that it will take 13 to 24 months for their portfolio to bounce back to 2019 RevPAR
levels.

According to a KPMG report, India's hospitality sector is expected to grow at a 16.1% compound
annual growth rate (CAGR) and from Rs. 15.24 lakh crore (US$ 234.03 billion) in 2017, the total
contribution of the travel and tourism sector to India's GDP is expected to rise to Rs. 32.05 lakh
crore (US$ 492.21 billion) in 2028. By 2022, India's total earnings from the sector are expected
to reach $50 billion.

Total sales value of restaurants

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 Analysis

When we analyzed the above data to figure out which factors/indicators have had the greatest
impact on the hospitality industry, we made sure to take into account the graphs as well as the
written data to come to a reasonable conclusion relating to macroeconomics in the context of the
hospitality industry. We concluded that in order of most to least important the factors were:
Fiscal Policy, Money Supply, GDP, National Income, Unemployment and finally Inflation.

● Starting with Fiscal Policy, this can be seen as most important as Fiscal policy quite
literally shapes the rest of the factors and considering that the industry has taken a hit of
over Rs 1.3 lakh crore: waivers, tax benefits and government funds will determine the
survival of the industry.
● Next, Money Supply is important because this factor is also vital to whether the industry
will go under or not. Due to the heavy loss in revenue, which has affected the supply of
money, the overwhelming demand of the industry which includes all the various costs
will cause bankruptcies and put many hotels, restaurants etc under. The solution for this
would be extensions on debt repayment because other than that there is no way to stop
the inevitable decline of hospitality related firms
● Subsequently, the next two factors of GDP and National Income are closely related
and will have the greatest impact following Fiscal Policy and Money Supply. We know
that GDP is a factor that determines the rate of economic growth of a country, and after
a lot of research we found that this industry contributes a whole 7.3% towards the GDP.
This indicates that it plays an important role in the pace of economic growth due to its
heavy market size, the increasing number of employment opportunities year after year
and also collecting a lot of revenue through the same.
● Unemployment is a very crucial point to touch on especially within the current pandemic
crisis which is causing a hike in unemployment rates in all industries. When looking at
the hospitality sector specifically, the numbers are especially alarming as 5.5 million jobs
have been recorded as lost and that figure was expected to grow to 38 million. However it
was also recorded that during the december 2020 quarter the sector employed close to 20
million people which shows that as the restrictions around covid reduce, so do
unemployment rates. This causes for a very volatile factor which is very dependent on the
government restrictions and so is hard to quantify as most or least important.
● Inflation was also quite an important factor as it has to do with the economy as a whole
and how rising in prices of everything/devaluation of units of currency will affect the
specific industry. In the end it was determined that the specific effect would mainly be
on labour costs as inflation causes for minimum required wages to go up and this would
cause for costs to go up within the hospitality sector which would cause for a decline in
profits

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 Conclusion

Through this project and macroeconomic analysis, we were able to evaluate and examine the
effect of the ongoing COVID-19 pandemic on the hospitality industry, and with the help of
suitable macroeconomic indicators we were able to conduct an in-depth analysis of the current
position of this industry and its sub-sectors. We found out that the indicators such as fiscal
policies and money supply had an adverse effect on the hospitality industry due to the high
GST rates, taxes etc,

However, one positive effect was the creation of several job opportunities which would directly
benefit the GDP of this country. This was definitely an enriching experience for all the team
members as we received the opportunity to practically apply the theory we learned in our classes
to the real world economy. We would also like to thank Mr. Vijay Sir for giving us this
assignment so that we could learn and obtain a practical understanding of this extremely
interesting issue.

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References:

Hotel industry: Indian hotel industry takes over Rs 1.30 lakh cr revenue hit in FY21, seeks govt
support: FHRAI, Retail News, ET Retail (indiatimes.com)
Tourism industry seeks reduction in GST rate, tax benefits to revive sector | Business
Standard News (business-standard.com)

https://hospitalityinsights.ehl.edu/economic-theories-covid-impact-hospitality-tourism

https://www.business-standard.com/article/economy-policy/fhrai-says-indian-hotel-industry-reve
nue-hit-in-fy-21-seek-govt-support-121051600214_1.html

https://inurture.co.in/blogs/hospitality-industry-all-about-it/

http://www.publishingindia.com/GetBrochure.aspx?query=UERGQnJvY2h1cmVzfC8yMjQ4Ln
BkZnwvMjI0OC5wZGY=

http://www.businessworld.in/article/Hospitality-Industry-In-India-A-Big-Contributor-To-Econo
my-s-Growth-/16-05-2017-118291/

https://www.wealthmanagement.com/lodging-hotel/strong-economy-fuels-growth-hotel-rates-inf
lation-worry

https://skift.com/2016/07/12/why-inflation-and-rising-wages-could-be-good-news-for-hotels/

https://www.ibef.org/industry/indian-tourism-and-hospitality-industry-analysis-presentation

http://www.businessworld.in/article/Hospitality-Industry-In-India-A-Big-Contributor-To-Econo
my-s-Growth-/16-05-2017-118291/

https://www.researchgate.net/publication/270252389_Inflation_and_Hospitality_Industry_Prices

https://www.sciencedirect.com/science/article/abs/pii/0278431983900324

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