Global Financial Crisis – The Challenges of Indian Tourism andHospitality Industry

P. SRINIVAS SUBBARAOHead of the Department, Dept. of Management Studies, Commerce & HRM, M.R.P.G. College, Vizianagaram-535001Email: ss_pasumarti@yahoo.co.in

There is no sector in the world which could not be affected by the global financial crisis including pilgrimages. There isno exemption to tourism and hospitality. The dual impact of global meltdown and Mumbai terror attacks made theIndian tourism most vulnerable. It could be argued that the sector most hit by the global financial crisis is theentertainment and hospitality industry. This is because entertainment, leisure and tourism are very vulnerable toeconomic uncertainty and volatility. Most travel and tourism activities involve optional expenses. During times ofeconomic recession, people like to conserve money to cover the essentials of life such as food, shelter and family necessities.The Travel & Tourism industry provides tremendous opportunity to India in terms of contribution to its GDP andemployment generation. According to CII estimates, an additional 1 million visitors can help generate revenues ofRs. 4, 300 crore annually.

INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT, ECONOMICS AND INFORMATION TECHNOLOGY

Vol. 3, No. 1, January-June 2011: 35-38

1. IMPACT OF GLOBAL FINANCIAL CRISISON TOURISM SECTOR

The ongoing global financial crisis adversely impactedIndian tourism sector, resulting in declining in thenumber of foreign tourists visiting India to 4.87 lakhin January as compared to 5.91 lakh during the sameperiod last year. Decline in number of foreigncustomers also hit India’s foreign exchange earnings,reducing the income to $941 million in January ascompared to $1,382 million in the same month last year.Number of foreign travelers declined 12.5% inDecember 2008, posing a threat to country’s hospitalityindustry. Hospitality industry, tour operators andairlines suffered much in the wake of global slowdownand terror attack on the financial capital of the countyon November 26 last year. The worst affected will bethe hoteliers who have raised loans to upgrade theirfacilities besides the tour operators, taxi and busoperators, restaurant owners, airlines companies, starhotels etc.,

Tourist arrivals in the country slowed from mid of2008, after rising 13 per cent year-on-year from 2005-2007, due to a slowdown in the main source marketsfor India, the U.S. and U.K., which account for morethan 15 per cent of all inbound tourists. Cutting downof routes by domestic airlines and increase in airfareslast year also led to a fall in the movement of people inthe country. The Mumbai terror attacks, targeting two

premium hotels, also tarnished the country’sreputation, drastically reducing hotel occupancy levels,and affecting year-end travel.

As per the source from different tourismcorporations on an average all the state and centralgovernment organizations like ITDC, KSTDC, andHPTDC lost almost 40 to 60% business and aresuffering with losses due to global crisis. We canobserve the impact in some states:

Karnataka: According to figures available withthe Karnataka State Tourism Development Corp(KSTDC), the number of tourists visiting Karnatakafell by 70 per cent in the first eight months of the year,compared to the same period last year – around6.5 million as against 21 million. The number of foreigntourists visiting the state between January and August2008 was about 75,000. In the same period in 2007,the number was around 245,000, the KSTDC figuresshow.

Himachal Pradesh: The tourism activity isadversely affected and there is 40 fall in domestic and60 per cent fall in foreign tourist in Himachal paradeshas per Himachal Pradesh Tourism DevelopmentCorporation (HPTDC) report.

Andhra Pradesh: State government-runoperators also relate a similar tale, “We haveexperienced a 40 per cent decrease in revenue in the

36 / International Journal of Business Management, Economics and Information Technology

last four months. The number of passengers travelingin our buses from Bangalore to Andhra Pradesh hasfallen drastically,” an Andhra Pradesh TourismDevelopment Corporation official in Bangalore.

Kerala: An official of the Kerala Tourism Corp,stationed in Bangalore, said on condition of anonymitythat never before had the corporation experienced sucha heavy loss of revenue.

“Due to the economic slowdown, the number oftourists from Bangalore to Kerala has reduced heavily.Most of our clients are IT professionals. As the ITindustry itself is reeling under the pressure of globalfinancial crisis, we have suffered,” said the official.

ITDC: Situation has come to such a pass that thecentral government-run India Tourism DevelopmentCorp (ITDC) has cancelled several of its daily schedulesand merged a few, after witnessing a steady decreaseof tourists.

“Business has fallen drastically. We have made hugerevenue losses in recent months. Most of our coaches,which can carry 45 passengers each, are running halfempty,” said an ITDC official.

Table 1Foreign Tourist Arrivals and Foreign Exchange Earnings in

the Year 2007-08 and 2008-09

Foreign ForeignForeign Foreign Exchange Exchangetourist tourist earning in earning in

arrivals in arrivals in 2007-08 2008-09Month & Year 2007-08 2008-09 in US $ in US $

April 350550 384203 780 943May 277017 300840 617 711June 310364 340159 691 796July 399866 429456 848 904August 358446 391423 760 845September 301892 330874 640 689October 444564 452566 959 873November 532428 521247 1149 1005December 596560 521990 1287 1046January 591337 487000 1382 941February 561393 502000 1305 923March 541478 472000 1248 867

Source: Ministry of Tourism, Government of India

2. IMPACT ON FOREIGN DIRECTINVESTMENT (FDI) IN TOURISM

In 2001, after much politicking, the Centre increasedthe allowance of FDI in hotels from 74 per cent to100 per cent through the automatic route. But theinflow has been negligible. Of the ten sectors in whichFDI is permissible, hospitality and tourism rank last,accounting for only 0.92 per cent of the total FDIaccrued by the country. As on November 2004, out ofthe 537 projects amounting to Rs. 4,909 crore alreadyapproved by the government since 1991, only Rs. 981crore has been the actual inflow into the hospitalityand tourism sector1.

And the state of affairs has nothing to do with thegovernment FDI policy, which is becoming increasinglyliberal, transparent and investor friendly. Initially, theapproval mechanism for FDI had a two-tier system.One was the automatic route under which forinvestments in areas identified and up to limits offoreign equity prescribed, companies could issue sharesand receive inward remittance within a period of 30days. No reference to the government is required. Inall other cases, the proposals are considered by ForeignInvestment Promotion Board (FIPB). Under a recentmeasure for simplifying the procedure, the ReserveBank of India (RBI) has dispensed with the need forobtaining RBI’s ‘in principle’ permission beforereceiving overseas investment or at a last stage forissuing shares to the foreign investors. The companywould however have to make a report to the RBI within

G-1 Showing the Growth in Foreign TouristArrivals in 2007-2009

Foreign tourist arrivals

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G-2 Showing the Growth in Foreign ExchangeEarnings in 2007-2008 & 2008-2009

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Global Financial Crisis – The Challenges of Indian Tourism and Hospitality Industry / 37

30 days after issue of shares to the foreign investor orinward remittance2. This positive move has foundfavour amongst most industry professionals buthospitality and tourism still lag behind.

Table 2FDI in Indian Tourism Sector from 2000 to Dec’2008

Investment Percentagein million of growth

S. No Year rupees over the year

1 2000 524.002 2001 471.54 – 10.013 2002 2,237.89 374.594 2003 2,594.21 15.925 2004 1,527.23 – 41.136 2005 2,799.59 83.317 2006 8,174.86 192.008 2007 7.537.49 – 7.89 2008 22.729.27 201.54

Source: http://dipp.nic.in/

Experts also predict that destinations with“favourable” exchange rates may benefit from thecurrent credit squeeze. Ironically, the surge in valueof the US dollar and the Euro may stimulateAmericans, Europeans and Japanese to resumetravelling overseas. The growth of Chinese and Indianoutbound travel may slow but will continue becausethese economies are still growing. There is likely to bea growth in domestic travel or short hauls internationaltravel as people choose to stay closer to home.

4. STEPS TAKE BY THE GOVERNMENTTaking the slowdown in tourism sector very seriously,the ministry announced slew of measures to promotetourism in the country and declared current year as‘Visit India’ year. It has taken various steps, hopingrecovery in tourism industry, by providingcomplimentary services to foreign tourists, involvingleading hotels and tour operators in its tourismpromotion programs.

4.1 Plannaing to Reduce the PricesBy prompting the Indian government to ask hotels toslash their prices by 10 to 15 percent in the hope ofkeeping demand high.

4.2 Security UpdatesHowever, Ministry of Tourism took several confidencebuilding measures in order to avoid a negative impacton tourism and the number of arrivals in Novemberrose to 5.21 lakh as against to 4.52 lakh in Octoberthis year. Security updates for foreign tourists havebeen put up on the website of the ministry. Regularinteractions with international travel industry andmedia through Indian missions and tourism officesoverseas and familiarization tours to the country havebeen arranged to attract foreign tourists.

4.3 To Popularise the Incredible India “AtithiDevo Bhavo”

Noted film actor Aamir Khan has been appointed asthe brand ambassador of the Incredible India ‘AtithiDevo Bhavo’ campaign as part of the ministry’s effortsto increase public awareness about the safety oftourists, hygiene and to safeguard historicalmonuments in the country. In a bid to attract moreforeigners, Tourism Ministry has coined a new slogan‘Your search ends here’ as part of its aggressiveIncredible India campaign across the globe.

Besides the slogan, the Tourism Ministry has alsolaunched a massive exercise in several countries topopularize the ‘Incredible India’ brand. Ten Japanese

G-4.1 Growth t in FDI in Tourism Sector

3. MEASURES TO OVERCOME FROM THEGLOBAL CRISIS

In almost all periods of economic crises or global tourismscare arising from events such as the 9/11 attack on theUnited States, people did not stop travelling but theyhad travelled differently from the way they were usedto in times of economic boom. Tourism and hospitalitybusinesses which will survive in the months ahead, sayobservers of the industry, are those with ability to adaptto the new circumstances.

Between short and medium term, there will emergetravellers who will spend less on travel. Those tourismand hospitality businesses, which can adapt to servicetravellers on a tighter budget will do well, say analysts.The demand for the luxury end of the market is likelyto decrease while demand for either low cost orperceived good value products and services is likely togrow. Airlines and hotels especially need to rapidlyadapt to this trend.

524.00 471.542,237.89 2,594.21

1,527.232,799.59

8,174.86

10,581.23

19,522.29

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20,000.00

25,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008*

Year

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38 / International Journal of Business Management, Economics and Information Technology

drivers dressed in Incredible India T-shirts andRajasthani turbans were plying on the streets offashionable Ginza district of Tokyo for two months aspart of Incredible India campaign.

Besides Japan, many taxis, buses and even subwaytrains painted with ‘Incredible India’ logo plied forseveral days in many countries including China,Russia, Korea, the UK and the US.

4.4 New ProjectsThe ministry has sanctioned nine mega projects atAmritsar, Bhubaneswar-Puri-Chilka, Tirupati,Dwarka, Hampi, Gangtok, Kadapa, Mahabalipuramand Ganga Heritage Cruise circuit to promote tourismin these areas. The projects are a mix of culture,heritage, spiritualism and eco-tourism in order to givevisitors a holistic perspective.

5. CONCLUSIONBecause of the wide variety of services that cater forvirtually all consumer spending capacities, there willstill be business for the hospitality industry in the faceof acute global economic recession. In line with theoptimistic growth forecasts by tourism associationssuch as the WTTC, UNWTO and PASTA, “tourism willsurvive this challenge as it has overcome a wide rangeof challenges since the 21st century began. The tourismindustry will have a rough ride the months ahead butthose who think and act strategically and have theability to adapt their business models quickly to thenew realities will overcome this challenge.” In thefuture, we may see budget airlines and hotels take thelead and demand for luxury accommodation drop willuntil another economic boom begins a new cycle ofconsumer spending.

Notes1. Ministry of tourism, Government of India, http://

tourism.gov.in

2. Foreign Investment Promotion Board, Dept. of EconomicAffairs, Ministry of Finance, Government of India,www.fipbindia.com

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