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GROWTH OF TOURISM INDUSTRY INDIA

Submitted by:

10th September 2011

Ashish Narula WMP7084 Ashish PahujaWMP7085 Astha Malik WMP7086 Avneet Kaur WMP7087 Chandramouli K WMP7088 Deepak Arora WMP7089 Deepak Priya WMP7090 Dheeraj Gupta WMP7091

Table of Contents
DEVELOPMENT OF TOURISM IN INDIA .............................................................................................................. 4 Early Development ............................................................................................................................................. 4 Types of tourism ................................................................................................................................................. 5 Trends in Tourism Industry ................................................................................................................................. 8 World trends .......................................................................................................................................... 8 India Trends ........................................................................................................................................... 8 Businesses benefitting from Tourism................................................................................................................. 9 IMPACT OF TOURISM IN INDIA ........................................................................................................................ 15 POSITIVE IMPACTS ............................................................................................................................... 15 NEGATIVE IMPACTS ............................................................................................................................. 15 Indian tourism industry in comparison to the world tourism industry .......................................................... 16 Current Scenario in Tourism Industry of India: ................................................................................................ 16 Indias Place in World Tourism: ........................................................................................................................ 17 Demand & Supply Scenario: ............................................................................................................................. 19 Demand Scenario: ................................................................................................................................ 19 Supply scenario: ................................................................................................................................... 19 Government Policies & Initiatives: ................................................................................................................... 20 Various factors affecting Tourism .................................................................................................................... 22 Application of Micro Economic Concepts in Tourism industry ....................................................................... 23 Monopoly -Price Discrimination.......................................................................................................... 25 Prospects of tourism firms .................................................................................................................. 26 Effect of Income on Tourism (Engel Curve) .......................................................................................... 27 Future of Indian Tourism .................................................................................................................................. 31 Incredible India !! ................................................................................................................................. 31 India on the World Map ....................................................................................................................... 31 Government Policy Initiatives ........................................................................................................................... 32

Going Forward- Destination India ..................................................................................................................... 32 World Tourism Outlook .................................................................................................................................... 34 References......................................................................................................................................................... 35

Table of Figures
1. Facts about Tourism 2010 ............................................................................................................................... 7 2. Total contribution of Travel & Tourism to GDP ............................................................................................. 10 3. Breakdown of Travel & Tourisms to GDP .................................................................................................... 11 4. International tourist arrival ........................................................................................................................... 12 5. ITA by country of destination ........................................................................................................................ 12 6. India Domestic Tourist (millions) ................................................................................................................... 13 7. Foreign tourist arrival Vs Foreign exchange earnings (India) ........................................................................ 13 8. India - Other jobs Vs Tourism Jobs ................................................................................................................ 14 9. India - GDP Vs Tourism Industry .................................................................................................................... 14 10. Relationship between Price of Hotel room vs Number of rooms demanded. ............................................ 23 11. Positive and negative Market Shock ........................................................................................................... 24 12. Economies and Diseconomies of Scale........................................................................................................ 24 13. Diminishing Marginal Utility Principle ......................................................................................................... 25 14. Monopoly -Price Discrimination .................................................................................................................. 26 15. Effect of Income on Tourism (Engel Curve) ................................................................................................. 27 16. Number of Docmestic Tourist Visits to all States/UTs in India, 1997-2010 ................................................ 28 17. Number of Docmestic Tourist Visits to all States/UTs in India, 1997-2010 (Graph) ................................... 28 18. Domestic Tourist (Million) ........................................................................................................................... 29 19. WTO Tourism Vision (International Arrivals)............................................................................................... 34

Introduction
The concept of Travel and Tourism is as old as civilisation. The OECD glossary of statistical terms defined tourism as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited.

DEVELOPMENT OF TOURISM IN INDIA


Early Development
Initial organised and conscious efforts to promote tourism in India were made in 1945 when a committee was set up by the Government under the Chairmanship of Sir John Sargent, the then Educational Adviser to the Government of India (Krishna, A.G., 1993). Thereafter, the development of tourism was taken up in a planned manner in 1956 coinciding with the Second Five Year Plan. The Sixth Five year plan marked the beginning of a new era when tourism began to be considered a major instrument for social integration and economic development. But it was only after the 80s that tourism activity gained momentum. The Government took several significant steps. A National Policy on tourism was announced in 1982. Later in 1988, the National Committee on Tourism formulated a comprehensive plan for achieving a sustainable growth in tourism. In 1992, a National Action Plan was prepared and in 1996 the National Strategy for Promotion of Tourism was drafted. In 1997, the New Tourism Policy recognises the roles of Central and State governments, public sector undertakings and the private sector in the development of tourism were. The need for involvement of Panchayati Raj institutions, local bodies, non-governmental organisations and the local youth in the creation of tourism facilities has also been recognised. Tourism is not merely an activity for pastime and entertainment. It is an enriching and energizing activity. Tourism has been a major social phenomenon of the societies all along. It is motivated by the natural urge of every human being for new experience, adventure, education and entertainment. The motivations for tourism also include social, religious and business interests. The spread of education has fostered a desire to know more about different parts of the globe. The basic human thirst for new experience and knowledge has become stronger, as technological advances are overcoming communication barriers. Progress in air transport and development of tourist facilities has encouraged people to venture out to the foreign lands. Tourisms importance, as an instrument for economic development and employment generation, particularly in remote and backward areas, has been well recognized the world over. It is the largest service industry globally in terms of gross revenue as well as foreign exchange earnings. Tourism can play an important and effective role in achieving the growth with equity objectives, which we have set for ourselves. Tourism is one economic sector in India that has the potential to grow at a high rate and can ensure consequential development of the infrastructure at the destinations. It has the capacity to capitalize on the countrys success in the services sector and provide sustainable models of growth. Tourism has the potential to stimulate other economic sectors through its backward and forward linkages and cross-sectoral synergies with sectors like agriculture, horticulture, poultry, handicrafts, transport, construction, etc. Expenditure on tourism induces a chain of transactions requiring supply of goods and services from these related sectors. The consumption demand, emanating from tourist expenditure, also induces more employment and generates a multiplier effect on the economy. As a result, additional income and employment opportunities are generated through such linkages. Thus, the expansion of the tourism sector can lead to large-scale employment generation and poverty alleviation. The economic benefits that 4

flow into the economy through growth of tourism in the shape of increased national and State revenues, business receipts, employment, wages and salary, buoyancy in Central, State and local tax receipts can contribute towards overall socio-economic improvement and accelerated growth in the economy. Tourism has also become an instrument for sustainable human development including: Poverty elimination. Environmental regeneration. Job creation. Advancement of women and other disadvantaged groups

Tourism is overwhelmingly an industry of private sector service providers, although the public sector has a significant role to play in infrastructure areas either directly or through Public Private Partnership (PPP) mode. It is a multi-sectoral activity characterized by multiple services provided by a range of suppliers. It is quite similar to manufacturing industry, where the supply chain is as important as the end product. The related sectors include airlines, surface transport, hotels, basic infrastructure and facilitation systems, etc. Thus, the growth of tourism cannot be attained unless the issues related to all the related sectors are addressed simultaneously.

For a developing country like India which is on the path of modern economic growth through structural transformation of the economy, tourism is the right vehicle. The value-added effect of tourism is increasing. India has emerged as one among the top 40 tourism earners. Thanks to the vibrant tourism industry, there is now an almost assured channel of financial flow to the country. With its forward and backward linkages with a host of sectors like transport, hospitality, education, health, banking etc., India is all set to reap full potential of this vibrant sector.

Types of tourism
Medical tourism
The medical tourism industry in India has been estimated to increase to around US$2 billion over the next couple of years. Expenditure of key health care treatment is up to 30 percent low in comparison to the United States and United Kingdom. Medial tourism in India emerges as a huge money generator. India has been promoting its healthcare tourism by giving the tourists with personal healthcare services. It is projected that the total marketplace for medical tourism will reach US$2 billion by 2012, representing a CAGR of 60.69 percent.

Spiritual tourism
India is spotted with a number of spiritual destinations. A visit to these places would help in spiritual selfdiscovery. In fact, divine tours of India allow one to care for the spirituality within oneself by going deep into the rich religious history of the country. Spiritual tours of India take one to quite a few spiritual destinations in the country which are famous for their religious and spiritual significance. Spread all over India, these spaces give tourists the delight and peace that may have eluded them for long and which may have stimulated them to visit the piously and religiously rich India.

Rural tourism
Those in the urbanized world who have an enthusiasm for facts about customary ways of life, arts and crafts will be fascinated to visit rural India. Rural India has much to present to humanity. As a historic civilization 5

rich in arts, crafts and culture, rural India can come forward with significant tourist spots. Thousands of overseas tourists visit rural areas in Rajasthan, Gujarat and south India every year. The government has realized what rural India can offer to the world. Rural tourism can also reduce absolute dependence on agriculture. It has now revived traditional crafts, buildings, art etc.

Adventure tourism
India has got varied geographical areas and climate which would aid in adventure tourism. India has land mass, beaches, rivers, hill & mountains to enjoy whatever form of adventure one likes. The hilly regions present many opportunities for mountaineering, rock climbing, trekking, skiing, skating, mountain biking and safaris, while the flowing rivers from these mountains are ideal for river rafting, canoeing and kayaking. Oceans have huge and profound area of water provides many chances for adventure sports in the form of diving and snorkelling.

MICE tourism (Meetings, Incentives, Conventions and Exhibitions)


The latest type of business tourism is the fastest growing part of the international tourism market. It caters to a variety of forms of trade meetings, international conferences and conventions, events and exhibitions and is gradually but progressively capturing the interests of every major hotel.

Ecotourism
This is a responsible form of tourism which encourages going back to normal products in each part of life. It is also the key to sustainable ecological development. Primarily, ecotourism means creating as small an environmental impact as possible and serving to maintain the original nature, so encouraging the conservation of wildlife and habitats when visiting a place. Ecotourism has measured the highest growing market in the tourism industry, according to the World Tourism Organization, with a yearly growth rate of 5 percent worldwide and representing 6 percent of the world GDP and 1.4 percent of all consumers spending.

1. Facts about Tourism 2010

Trends in Tourism Industry


World trends
Global market trends indicate that long-haul travel, neighbouring country tourism, rural and ethnic tourism, wellness and health holidays, cultural tourism, spiritualism, ecotourism, sports and adventure holidays, and coastal tourism and cruises are a few emerging areas of tourist interest. From a geographic viewpoint, there has been a remarkable rise in Asian tourists, particularly from China and East Asian countries. Further, the average age of the international tourist has also been reducing representing a growing segment of young tourists who would typically travel to take a break from increasingly stressful professional lives.

India Trends
Indian travel and tourism industry bounced back from the effects of global economic slowdown last year and is optimistic of good business growth in 2011. 2010 was a recovery period for the Indian travel and tourism industry. The focus clearly was to revive business hit by the economic downturn and restore trust among travellers worldwide that India is a safe destination and has come out of the shadows of the 2008 Mumbai terror attacks. Innovation and reworking business models played key roles in revitalizing business reeling under the effect of global economic slowdown. With corporate travel and inbound traffic hit badly, the huge potential of domestic tourism was explored seriously for the first time by many travel and hospitality players. Companies diversified their portfolios with niche product offerings and tested the water with new avenues of marketing like social media. The Ministry of Tourism, Government of India also decided to bring the industry under one platform by spearheading the idea to form the Confederation of Indian Travel & Tourism Industry (CITTI). This is a landmark moment in the Indian tourism as all the travel, tourism and hospitality associations came together for the first time to submit a common pre-budget memorandum.

Other important Trends


Cooperation and consolidation, technology and innovation are viewed as the key trends. Social media has become a mainstay of marketing and only those who are tech savvy to channelize on technology will prosper. Niche and event oriented tourism is increasingly gaining ground. Todays traveller is often well informed and in danger of information overload specialists will need to have genuine in-depth knowledge of destinations, events and new concepts to create a satisfying experience for travellers. The increase in number of hotel rooms expected in the country will help position India as a value for money destination. Major advertisement campaigns by Tourism Ministry, Govt of India like Incredible India. Burgeoning Indian middle class and propensity of spending.

The online travel industry has observed a significant growth over the last year and international movement is further expected to see an upsurge this year. This increase will be due to more accountability, transparency and safer payment options offered by the online medium Consolidation by way of mergers and acquisitions is becoming a dominant trend. The small to medium travel agents are finding it very difficult to survive as today you need volume and huge funds to sustain. Aviation sector has seen phenomenal growth. Low Cost Carriers (LCCs) in the coming years will be preferred over legacy carriers. One can see the growth of LCCs in the Indian market and it will take place for both short and long haul travel. Numbers of airports are increasing and this is connecting India much better.

Businesses benefitting from Tourism

o o o o o o o o o o o o o o o o o o

Proportion of income from tourism Eating and Drinking Restaurants Pubs Cafes Night-clubs Miscellaneous Crafts Supermarket Garages Sports Equipment Other retail

All of income from tourism Accommodation Hotels Holiday villages Time-shares Guest houses Self-catering Camps / Caravans

Travel Agents Transport Airlines Cruise ships Car Rentals Visitor Attractions Theme Parks Museums/Galleries Historic sites

Recreation Facilities Cinemas/theatres Swimming Poools Public Transport Buses, Trains, etc Taxis

2. Total contribution of Travel & Tourism to GDP

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3. Breakdown of Travel & Tourisms to GDP

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4. International tourist arrival

5. ITA by country of destination

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6. India Domestic Tourist (millions)

7. Foreign tourist arrival Vs Foreign exchange earnings (India)

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8. India - Other jobs Vs Tourism Jobs

9. India - GDP Vs Tourism Industry

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IMPACT OF TOURISM IN INDIA


Tourism industry in India has several positive and negative impacts on the economy and society. These impacts are highlighted below.

POSITIVE IMPACTS
1. Generating Income and Employment: Tourism in India has emerged as an instrument of income and employment generation, poverty alleviation and sustainable human development. It contributes around 6.0% to the national GDP and 9.25% of the total employment in India. Almost 25 million people are now working in the Indias tourism industry. 3. Source of Foreign Exchange Earnings: Tourism is an important source of foreign exchange earnings in India. This has favourable impact on the balance of payment of the country. The tourism industry in India generated about US$100 billion in 2008 and that is expected to increase to US$275.5 billion by 2018 at a 9.4% annual growth rate. 4. Preservation of National Heritage and Environment: Tourism helps preserve several places which are of historical importance by declaring them as heritage sites. For instance, the Taj Mahal, the Qutab Minar, Ajanta and Ellora temples, etc, would have been decayed and destroyed had it not been for the efforts taken by Tourism Department to preserve them. Likewise, tourism also helps in conserving the natural habitats of many endangered species. 5. Developing Infrastructure: Tourism tends to encourage the development of multiple-use infrastructure that benefits the host community, including various means of transports, health care facilities, and sports centers, in addition to the hotels and high-end restaurants that cater to foreign visitors. The development of infrastructure has in turn induced the development of other directly productive activities. 6. Promoting Peace and Stability: The tourism industry can also help in promoting peace and stability in developing country like India by providing jobs, generating income, diversifying the economy, protecting the environment, and promoting cross-cultural awareness. However, key challenges like adoption of regulatory frameworks, mechanisms to reduce crime and corruption, etc, must be addressed if peace-enhancing benefits from this industry are to be realized.

NEGATIVE IMPACTS
1. Undesirable Social and Cultural Change: Tourism sometimes led to the destruction of the social fabric of a community. The more tourists coming into a place, the more the perceived risk of that place losing its identity. A good example is Goa. Hippy culture lead to a rise in the use of drugs, prostitution and human trafficking. This had a ripple effect on the country. 2. Increases Tension and Hostility: Tourism can increase tension, hostility, and suspicion between the tourists and the local communities when there is no respect and understanding for each others culture and way of life. This may further lead to violence and other crimes committed against the tourists. The recent crime committed against Russian tourist in Goa highlights this concern. 3. Creating a Sense of Antipathy: Tourism brought little benefit to the local community. In most all-inclusive package tours more than 80% of travelers fees go to the airlines, hotels and other international companies, not to local businessmen and workers. Moreover, large hotel chain restaurants often import food to satisfy 15

foreign visitors and rarely employ local staff for senior management positions, preventing local farmers and workers from reaping the benefit of their presence. This has often created a sense of antipathy towards the tourists and the government. 4. Adverse Effects on Environment and Ecology: One of the most important adverse effects of tourism on the environment is increased pressure on the carrying capacity of the ecosystem in each tourist locality. Increased transport and construction activities led to large scale deforestation and destabilisation of natural landforms, while increased tourist flow led to increase in solid waste dumping as well as depletion of water and fuel resources. Flow of tourists to ecologically sensitive areas resulted in destruction of rare and endangered species due to trampling, killing, disturbance of breeding habitats. Noise pollution from vehicles and public address systems, water pollution, vehicular emissions, untreated sewage, etc. also have direct effects on bio-diversity, ambient environment and general profile of tourist spots.

Indian tourism industry in comparison to the world tourism industry


Current Scenario in Tourism Industry of India:
Today tourism is the largest service industry in India, with a contribution of 6.0% to the national GDP and providing 9.25% of the total employment. Commencing with the slow growth at the start of the millennium, The Indian Tourism Industry has performed quite well in the last couple of years. The Indian Tourism Industry has out performed the global tourism industry in terms of growth in the volume of international tourist as well as in terms of revenue. The World Trade and Tourism Council (WTTC) have named India along with China as one of the fastest growing tourism industries for the next 10 to 15 years. The key driver of for this growth in the Indian Tourism Industry has been a fast growing economy for the last 3 - 4 years. Despite lagging in the basic infrastructure that supports the tourism industry; Indian tourism industry has been showing an impressive double digit growth. According to Global Hotel and Hospitality consulting firm, HVS International, the strong performance in tourists arrivals from 2005 can be attributed to a strong sense of business and investment confidence in India inspired by: Indias strong GDP performance; Strengthening of ties with the developed world; and Opening of sectors of the economy to private sector/foreign investors.

The efforts made by the Ministry of Tourism & culture in the last few years have had a salutary effect on the Indian Tourism Industry.

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Indias Place in World Tourism:


The World Tourism Organization forecast indicates an increasing tourism preference towards East Asia, the Pacific, West Asia and South Asia, although Europe and America still remain the worlds foremost tourism destinations commanding 77 per cent of the global market. East Asia/Pacific achieved the highest rate of growth of 14.5 percent in tourism and travel in 2000 followed by West Asia and South Asia. With this gradual shift in focus, the outlook for the growth of tourism in the region is promising. In Asia, China has emerged as a leading tourist destination and is poised to become the worlds top tourist destination by 2020. The WTTC has identified India as one of the worlds foremost tourist growth centers in the coming decade. After Turkey, India is expected to achieve the fastest rate of growth of the total amount of economic activity likely to be generated by travel and tourism, at 9.7 per cent over the next 10 years. Also, the largest employment creation after China is expected to take place in India over the same period. The growth in visitor exports or spending by international tourists is likely to be the fastest in India at 14.3 per cent per annum over the next decade. On the whole, the WTTC forecast for India is promising, subject to key policy issues that affect the growth of the sector being addressed. If India is to realise its enormous potential in tourism it must provide exclusive world-class tourism products and destinations to compete successfully for a larger share of the Asian tourism market. Today, outbound tourism from India far exceeds visitor traffic to the country partly because there is a lack of world-class destinations within the country and partly because the domestic tourism policy has been largely directed towards those in the lower end of the spending spectrum. The high spender from India prefers to visit neighbouring countries as he gets better value for money. Indias international arrival figures have not been able to keep pace with neighbouring countries and have been exceeded by Thailand, Malaysia, Indonesia, Dubai and the Maldives. Since 1995, Indias share of the world market has remained virtually stagnant at 0.38 per cent, while domestic tourism has grown at a phenomenal rate and India now accounts for 4.6 per cent share of domestic tourism worldwide. In terms of tourism receipts, India has shown relative buoyancy because of the interest shown by visitors in traditional handicraft items and particularly in diamonds.

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Contibution of Travel and Tourism to Exports and Receipts World Average Total tourism exports as percentage of total exports 12.15 Tourist Receipts 5.2 India World Rank

9.5 11.8

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Contibution of Travel and Tourism to Employment World Number of Employed 207.1 million India 25 million Rank 2nd

Indias Tourist Profile:


India receives the largest number of overseas tourists from the United Kingdom, which is its largest source market, followed by the United States, Sri Lanka, France, Germany, Canada, Japan, Australia and Singapore. Of the tourists coming to India, 27.5 per cent are in the age group India receives the largest number of overseas tourists from the United Kingdom, which is its largest source market, followed by the United States, Sri Lanka, France, Germany, Canada, Japan, Australia and Singapore. Of the tourists coming to India, 27.5 per cent are in the age group of 35-44 years, 23.4 per cent in the age group of 25-35 years and 20.8 per cent in the age group of 45-54 years. Women constitute only 30.5 per cent of Indias total international arrivals. Repeat visitors account for 44.9 per cent of the overseas visitors. A substantial number of these may be non-resident Indians, as hotel reservations do not correspond to the number of international arrivals in the country. The average length of stay of foreign tourists in the country in 1998 was 31.2 days. Domestic tourism, on the other hand, is largely pilgrimage-oriented and requires improvement in travel facilities and pilgrim destinations.

India's Tourist Profile : Domestic & International Percentage Share of India 0.38% 0.69% 4.60%

World ($) International Arrivals Tourism Receipts Domestic Tourism Worldwide 698 million 595 billion 6980 million

India ($) 2.64 million 3.2 billion 210 million

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Demand & Supply Scenario:


Demand Scenario:
Main reason for this increase in business traffic to India has been following fundamental factors: Indias strong GDP performance; Strengthening of ties with the developed world; and Opening of sectors of the economy to private sector/foreign investors. Reforms in aviation sector which led to better connectivity with many countries such as ASEAN and created additional capacity on existing routes. Development of infrastructure by the government. Indias emergence as outsourcing hub. Success of Incredible India campaign and other tourism promotion measures. Indias growing recognition as an exciting place to visit has helped to boost its image as a leisure destination.

Supply scenario:
According to estimates by HVS International, around 10856 rooms in Delhi, 9318 in Mumbai, 7794 in Bangalore and 7408 rooms in Hyderabad are to be expected to be added in by 2011.

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Government Policies & Initiatives:


A) Tourism Policy: In order to develop tourism in India in a systematic manner, position it as a
major engine of the economic growth and to harness its direct and multiplier effects for employment and poverty eradication in an environmentally sustainable manner, the National Tourism Policy was formulated in the year 2002. Broadly the policy attempts to: Position tourism as the major engine of economic growth;

Harness its direct and multiplier effects for employment and poverty eradication in an environmentally sustainable manner

Focus on domestic tourism as major driver of growth Acknowledges the critical role of private sector with government working as a pro active facilitator and catalyst; Create and develop integrated tourism circuits based on Indias unique civilization, heritage, and culture in partnership with states, private sector and other agencies. Ensure that the tourist to India gets physically invigorated, mentally rejuvenated, culturally enriched and spiritually elevated and feel India from within

B) Governments Open Skies Policy:


The Governments Open Skies Policy, permission for domestic airlines to commence international flights, start up of various low cost carriers, and fleet expansion by domestic players has created a huge incentive for domestic travellers to explore far off destinations within and outside India.

C) Foreign Trade Policy:


The Foreign Trade Policy announced in April 2006 offered following incentives to hospitality Industry: Hotels and restaurants are allowed to import duty free equipment and other items including liquor, against foreign exchange earnings under the Served from India scheme. Service exports in Indian Rupees, which were otherwise considered as having been paid for in foreign exchange by RBI, will now qualify for benefits under the Served from India scheme.

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Benefits of the scheme earned by one service provider of a Group company can now be utilized by other service providers of the same Group Company including managed hotels.

D) FDI in Hotel and Tourism Sector:


100 percent FDI is permissible in the sector on the automatic route.

E) Other Government Initiatives:


Government has undertaken following initiatives to attract inbound and outbound tourists:

Incredible India Under this program government promotes India through various integrated marketing programs

Atithie devo Bhava ( Gusets are equal to God) Under this program the Government create awareness among Indian people who come in contact with the tourist.

Various Infrastructure building initiatives

Encourage religious tourism to promote various places in India as Buddhist abodes.

Other projects include development of National Highways.

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Various factors affecting Tourism


o Economic Factors
Increased Income levels &Propensity of spending GDP of India

o Social Factors
Healthy lifestyles are being encourages Young population ( Demographics)

o Cultural Factors
Festivals Maintenance of historical monuments, Museums, Galleries

(India ranks No 7 in world heritage sites) Exhibitions and Trade fairs

o Political factors
Terrorism & Security, Infrastructure, International politics etc.. Worlds largest democracy Religious tolerance Relations with neighbouring countries

o Governmental factors
Aggressive campaign Incredible India Tax exemptions and price competitiveness

( 6th overall in this category) Upto 100% NRI investments are allowed

Tax exemptions for travel operators

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Application of Micro Economic Concepts in Tourism industry

1. Relationship between Price of Hotel room vs Number of rooms demanded.

10. Relationship between Price of Hotel room vs Number of rooms demanded.

The demand curve and the supply curve are drawn above for the price of the room and the number of rooms demanded. An equilibrium point is reached when the number of rooms supplied is equal to the number of rooms demanded at a certain price. Also, the demand curve and the supply curve could be shifted due to many economic factors and accordingly the equilibrium point would be shifted. Below is a table showing positive and negative Market Shock for the various economic factors

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11. Positive and negative Market Shock

2. Economies and Diseconomies of Scale

12. Economies and Diseconomies of Scale

The above picture represents the concept of economies and diseconomies of scale for the motel industry. 24

3. Diminishing Marginal Utility Principle

13. Diminishing Marginal Utility Principle

In the above picture, S is the satisfaction level, d is the number of days tourist stay at the destination and d* is Optimal duration of tourist stay. According to the theory of diminishing marginal utility, the utility of any good decreases as the quantity consumed increases. The satisfaction (S) a tourist may benefit from a destination is linked to the duration of the stay (d). After staying for d* number of days, satisfaction level of tourist starts decreasing.

Monopoly -Price Discrimination


When a monopolist discriminates between consumers the practice is called Price Discrimination. He is sometimes able to charge different prices to different consumers of the same commodity. In the Tourism Industry the consumers are categorized into different classes and accordingly the prices are charged .

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14. Monopoly -Price Discrimination

In the above graph, we measure quantity along the x-axis and price(P), average cost(AC), marginal cost(MC), average revenue(AR), marginal revenue(MR) along the y-axis. The monopolist faces a downward sloping demand curve and as such his MR curve is also downward sloping. The monopolist will produce at the profit maximizing level which is the point where 1. MR=MC and 2. MC cuts MR from below.

This happens at the point E and accordingly the quantity supplied would be Q* and the price charged is P*. The AC curve intersects Q at the point F. As such his TC =C*FQ*0. His TR= P*GQ*0 and the profit earned is denoted by the area P*GFC*. The monopolist earns profit in the long run also as there is no competitor to enter the industry and take away his share of profits. The above graph applies to the SOTC , Thomas cook and cox and kings when they were enjoying monopoly status in the industry. When a monopolist discriminates between consumers the practice is called Price Discrimination. He is sometimes able to charge different prices to different consumers of the same commodity. In the Tourism Industry the consumers are categorized into different classes and accordingly the prices are charged .

Prospects of tourism firms


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Most of the tourism and travel firms would have constant returns to scale, as the output of the firm doubles when the input doubles. Inputs could be identified as the drivers, tourist cabs, seats for staff, computers etc. But there could be economics of scale as well when the cost of inputs could be reduced by using a better technology (early information through internet, faster ticket booking etc.). For most of the tourism firms, demand curve will be determined by the market demand curve & individual agencies will have horizontal demand curve as they are working in a competitive environment. Also, there can be monopolistic behaviour for few firms who are able to differentiate in terms of their service & reputation (Thomas cook etc.) Their demand curve will have downward slope & will be earning profit in short run, but in the long run their economical profit will be zero as more firms might enter the industry to share the profit.

Effect of Income on Tourism (Engel Curve)

15. Effect of Income on Tourism (Engel Curve)

As shown in the above chart, GDP per capita of India is increasing over the last few years.

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16. Number of Docmestic Tourist Visits to all States/UTs in India, 1997-2010

17. Number of Docmestic Tourist Visits to all States/UTs in India, 1997-2010 (Graph) 28

As shown in the above table and graph, number of domestic tourist visits are also increasing over the last few years.

In the above table, GDP per capita and the domestic tourist visits are shown together for the years 1997 to 2010.

18. Domestic Tourist (Million) Domestic tourist visits are plotted against the GDP per capita in the above chart. The above table and the chart represent the income effect (Engel Curve) for different years for the domestic tourism industry. Below table shows the Elasticity of income. Note that % change in tourism with respect to % change in income is positive.

Elasticity = %change in tourism/% change in income Increasing tourism with income increase so Tourism has positive elasticity with income

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Reasons for growth of India Tourism


Burgeoning Indian Middle class Growth in high spending foreign tourists Disposable Income (During 2001 -2006 income has grown by 10.15 %) Booming IT and Outsourcing Industry has resulted in increased business trips. Tourists add a weekend break or longer holiday during the trip. Foreign tourist spends more in India than any other country leading to exchange earnings. New baby Medical tourism is growing at 30% . More and more people are visiting India for cosmetic surgeries Diversity of India's natural and cultural richness provides the basis of a wide range of tourist products and experiences, which embrace business, leisure, culture, adventure, spirituality, eco-tourism and many other pursuits. The important initiatives taken by the Government to improve the flow of foreign tourists into the country and thereby increasing the country's share in the world tourism included the following: Beginning of cruise tourism by an international shipping firm. Direct approach to the consumers through electronic and print media through the "Incredible India" Campaign called "Colours of India". Creation of World Class Collaterals. Centralized Electronic Media Campaign. An integrated campaign in South East Asia to promote Buddhist sites in India. Direct co-operative marketing with tour operators and wholesalers overseas. Greater focus in the emerging markets particularly in the region of China, South Korea, Japan and South East Asia. Participation in over 185 Trade Fairs & Exhibitions all over the world. Optizmizing Editorial PR and Publicity. Wide spread use of Internet and Web marketing. Generating Tourist Publications. Re-enforcing hospitality programmes including grant of air passages to invite media personnel and tour operators on familiarization tours to India to get first hand knowledge on various tourism products. Launching of Road Shows in key source markets of Europe, America, South East Asia and the Middle East. Focusing on growth of hotel infrastructure particularly budget hotels. Enhancing connectivity through augmentation of air capacity and improving road infrastructure to major tourist attractions. Introduction of the Medical Visa.

Indias governmental bodies have also made a significant impact in tourism by requiring that each and every state of India have a corporation to administer support issues related to tourism.

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Future of Indian Tourism


Conde Nast ranked her amongst the top 10 tourist destinations. JBIC ranked her as the fifth most attractive investment destination. By 2020, Tourism in India could contribute Rs.8,50,000 crores to the GDP. (Source- WTTC).The Travel and Tourism industry holds tremendous potential for India's economy. It can provide impetus to other industries, create millions of new jobs and generate enough wealth to help pay off the international debt. That is why we have included Tourism amongst the Core Sectors of the Indian Economy. According to the latest Tourism Satellite Accounting (TSA) research, released by the World Travel and Tourism Council (WTTC) and its strategic partner Oxford Economics in March 2009:

The demand for travel and tourism in India is expected to grow by 8.2 per cent between 2010 and 2019 and will place India at the third position in the world. India's travel and tourism sector is expected to be the second largest employer in the world, employing 40,037,000 by 2019. Capital investment in India's travel and tourism sector is expected to grow at 8.8 per cent between 2010 and 2019. The report forecasts India to get capital investment worth US$ 94.5 billion in the travel and tourism sector in 2019. India is projected to become the fifth fastest growing business travel destination from 2010-2019 with an estimated real growth rate of 7.6 per cent.

Incredible India !!
India is probably the only country that offers various categories of tourism. These include History tourism, Adventure tourism, Medical tourism (ayurveda and other forms of Indian medications), Spiritual tourism, Beach tourism (India has the longest coastline in the East) etc. Explore India One can choose the locales of your choice, and see what each state has to offer and can lose oneself in the wonder that is India. Tourists have the options of exploring modern cities that have grown organically from the roots of a multi-coloured past,make a pilgrimage to holy shrines that echo with tales of antiquity, fun and frolic on a vast array of golden beaches that dot an enviable coastline, washed by two seas and an ocean. Sport with adventure in style. Jungles lure the tourists to a fascinating world at a diverse array of wildlife sanctuaries and national parks....... this is the wonder that is India.

India on the World Map


The Indian tourism industry is in good shape since 1990s. Though the Indian economy had slowed, it was still growing faster than the rest of the world. With Indian economy growing at around 8-9% per annum and rise in disposable incomes of Indians, an increasing number of people are going on holiday trips within the country and abroad resulting in the tourism industry growing wings.

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It is fast turning into a volume game where an ever-burgeoning number of participants are pushing up revenues of industry players (hotels, tour operators, airlines, shipping lines, etc). Thus, the tourism sector is expected to perform very well in future and the industry offers an interesting investment opportunity for long-term investors. The Indian tourism sector is seen generating $42.8 billion by 2017, a 42 percent surge from 2007, according to an industry research note by auditing and consulting firm Deloitte Touche. Despite the challenges being faced in terms of a slowing economy, sluggish demand and security concerns, the country was fighting back and tourism developments were taking place, it said." Although there will inevitably be some short- to medium-term set backs, the long-term outlook remains positive," it said." Despite the deepening world economic crisis, India's economy remains in decent shape and is still experiencing some of the strongest growth rates in the world," the Deloitte report said. Despite the numerous problems, tourism industry was the second-largest foreign exchange earner for India. This is resulting foreign hospitality groups rushing towards India. International tourists account for a little over 5 million visitors, while domestic market is seen at more than 700 million. Limited infrastructure poses a constraint to the free flow of tourists, but the Indian government is addressing the issue through upgradation of existing airports and building new ones. It is also considering other incentives such as offering air travel and accommodation for foreign tourists who visit India for the third time. It may also pick up the bill for tour operators promoting domestic and medical tourism and is mulling income tax exemption for hoteliers if they invest 50 percent of profits into infrastructure.

Government Policy Initiatives


Keenly aware of the unfolding boom in the tourism industry, the government is lending a hand to the growth of the industry. In the Union Budget for 2003-04, government has extended infrastructure status to tourism, thus opening the doors to cheap, long-term funds to help finance tourism infrastructure. Outlay for tourism for the Tenth Five Year Plan is Rs. 2900 Crore. For the financial year 2003-04 the outlay is Rs 325 crore. This is up sharply from Rs 150 crore allocated in the previous financial year. State governments such as Kerala lay a lot of stress on boosting tourism. The state has an outlay of Rs. 74.25 crore for the financial year 2003-04. The Government of India has extended the benefits of Section 10(23G) of the Income Tax Act, 1961 to institutions financing hotels of three-star category and above. A top level executive of Travel Finance Corporation of India (TFCI) is all smiles as he says, "This has benefited TFCI as the company has a major part of its portfolio in the exempted category." And this smile is now strongly percolating down to all tourism industry players in the country. The divestment of governments stake in government run hotels is another step in the right direction. Professionals are increasingly stepping in to take over this service-oriented industry. Global best practices, cost cuts and service with a smile are fast turning a norm.

Going Forward- Destination India


India is now chalking up one of its strongest growth charts in a long time. As the Indian economy continues to open up in an effort to integrate with the world economy, benefits of doing business with and in India are increasing. With the results, hundreds of thousands of jobs are moving to the Indian shores from the West. This brings in its wake transit travelers, business travelers, business meets and holiday seekers.

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This is resulting in greater room occupancies and average room revenues (ARRs) in the country. ARRs have moved up from Rs. 3200-3400 last year to Rs 4000-4200 this year. Room occupancy rates have shot up from 75-80% in 2002 to over 90% now. Infact, in Bangalore it is now estimated at 100%.

Constraints: The major constraint in the development of tourism in India is the non-availability of adequate
infrastructure including adequate air seat capacity, accessibility to tourist destinations, accommodation and trained manpower in sufficient number. Poor visitor experience, particularly, due to inadequate infrastructural facilities, poor hygienic conditions and incidents of touting and harassment of tourists in some places are factors that contribute to poor visitor experience. Hotel room rents in India are still expensive compared to counties like Thialand and China. This hurt Indian tourism. Though this discrepancy has come down, still there is some gap. Some of the reasons for this are high luxury and entertainment taxes and high landing charges applicable in Indian airports. Tourism in India is a state subject. Each state separately spends on tourism and tourism related activities, whereas if these funds were spent in a cohesive manner by a central agency to showcase the entire country as one destination, the results would probably have been far more spectacular.

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World Tourism Outlook


International Tourism receipts would jump from $500 billion in 2000 to $2000 trillion in 2020. Vulnerable to currency fluctuations. One size fits for all ( mass market tourism) is still dominating and would continue to dominate Specific / highly focused/ event based tourism is gaining prominence Accelerating technological advances would boost tourism Increased security and safety concerns (cctv, body scans, finger prints, eye scans etc.) Increased size and speed of aircrafts Smart highways ( better infrastructure) are being constructed to improve the infrastructure High speed internet is going to make life simpler Business traveller gives a mixed outlook o o Virtual conferencing, improved communications would result in reduced tourism More companies have global presence. Require frequent face to face meetings and increase the prospects of the industry.

Travellers are seeking memories and experience

19. WTO Tourism Vision (International Arrivals)

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References

http://www.iata.org/ http://tourism.gov.in/ http://civilaviation.nic.in/ www.incredibleindia.org World travel and tourism council reports (www.wttc.org) www.economywatch.com www.ilfsindia.com/downloads http://planningcommission.nic.in/reports/generalp/pl_vsn2020.pdf http://www.ibef.org/download/IndiaNewOpportunity.pdf http://www.unescap.org/EDC/English/Commissions/E63/E63_14E.pdf http://www.ret.gov.au/tourism/Documents/tmc/tourism-industry-potential.pdf http://pib.nic.in/feature/feyr2001/fmay2001/f010520011.html http://www.isc.hbs.edu/pdf/Student_Projects/Nepal_Tourism_2011.pdf http://www.isc.hbs.edu/pdf/Student_Projects/Morocco_Tourism_2008.pdf http://www.indiacore.com/tourism.html http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/New/2010.pdf http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/stat1-09.pdf http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/stat2-09.pdf

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