Subject
Group on Service Industries
Convenor
Dr. A.C. Muthiah
REPORT ON
SERVICE INDUSTRIES
PROMOTION
OF TOURISM
I. The
potential
Services Sector
In
keeping with the general trend the world over in economic development, the contribution of
the Services sector to India’s GDP has been growing. Currently (1997-98) services
account for nearly 48.6% of the nation’s GDP, far more than the contributions of the
agricultural or the manufacturing industry sectors (RBI Annual Report, August 1998).
2. The Services
sector or what goes under the category of ‘Service Industry’ in national
accounts is a conglomerate of diverse segments ranging from community, social and personal
services through transport, financial services, information technology to hospitality and
tourism. The range and variety of the segments are vast indeed and so are the policy
prescriptions needed for the promotion of each segment. This paper deals with Tourism, a
service industry that holds immense potential for growth in the coming years.
Tourism
3. India
has been a spiritual and cultural destination for tourists from all over the globe from
time immemorial. Its rich cultural diversity, religions, languages, magnificient
monuments, its sheer size and people have been a source of fascination for outsiders and
insiders alike. How alive this fascination is can be gauged from the fact that since 1988
the arrival of foreign tourists in India has gone up steadily from 1.6 million to nearly
2.4 million in 1997. As many as 162 million domestic tourists undertook travel within the
country in 1997 and out of these 150 million were pilgrim tourists. According to the World
Tourism Organisation (WTO) South Asia would receive 6 million tourists in 2000 AD of which
India’s share will be half. Such is the growth potential of tourism sector in the country.
Foreign Exchange
Earner
4. Tourism has
emerged as the largest export industry in the world and India has shared in this
prosperity. Its foreign exchange earnings from tourism went up from Rs.32 crores in
1974-75 to Rs.11000 crores in 1997 at current prices. Tourism is the third largest foreign
exchange earner in the country next to Gems & Jewellery and Textiles and Garments. If
one were to ignore its negligible import content, tourism would rank even higher than the
other two in terms of net foreign exchange earnings.
Employment Generation
5.
Foreign exchange earnings apart, the tourism sector’s potential for employment
generation is immense both in terms of numbers and cost effectiveness. Tourism provided
direct employment to 8.5 million people, accounting for 2.4% of the labour force, in
1995-96. The figure went up to 9.1 million in 1996-97. Indirect employment was of the
order of 21.4 million. Compared to agriculture which generates 44.7 jobs per million
rupees of investment, tourism notches up 47.5 jobs for the same investment.
Goodwill and International understanding
6. Again,
the appeal of tourism as an area deserving promotion on priority basis lies not just in
the volume of foreign exchange earnings but more in the goodwill and international
understanding that it helps to create. During the cold war years and now in the unipolar
world, India’s voice has been strident in upholding international peace and harmony.
Tourism helps the foreigner to understand the peculiar Indian ethos which is at once
mystical and practical and has shaped its international relations. Above all, tourism
promotes national integration and a sense of oneness among nearly one billion people.
Eco and Adventure Tourism
7. In
recent years, India has emerged as a destination for natural and eco tourism and adventure
tourism. With 4.5% of its land area under some form of legal protection, India can boast
of a large number of national parks and game sanctuaries rich in flora and fauna. The
country’s 6000 KM long coastline has exquisite sandy beaches. The emergence of India
as a strong scientific and technological power has brought in its wake a special brand of
tourists to India which participates in national and international scientific and
technical gatherings.
II. The
problems
Hurdles to growth
of tourism
8. Such
being the potential for growth of tourism in India, one should naturally examine the
measures necessary to realise this potential fully. To do that, we must begin by looking
at the inadequacies in the present arrangements which hamper growth. These inadequacies
are many and can be broadly listed as follows:
I) Lack of adequate
infrastructure in the form of air services and airports, roads, telecom and accommodation.
ii) Levy of tax on
tourism and tourists that are not only high but also unconscionable.
iii) Plethora of
clearances to be obtained from numerous agencies of the Central and State Governments.
iv) Difficulties in
obtaining land for hotel projects.
v) Restrictions on
movement of tourists and tourist vehicles.
vi) Lack of adequate
security to foreign tourists to go around without fear of bodily harm or loss of
belongings.
vii) Inadequate
human resource development leading to the visitor being treated more as an intruder than
as an honoured guest.
INFRASTRUCTURE
Air Services
9. Air services and airports are still at
a primitive state in India. Hardly a day passes without the newspapers carrying angry
letters to the editors from irate foreign tourists complaining of cancellation of flights
or the lack of facilities at the airports. There are less than half a dozen international
airports in this vast country. The tourist is compelled to take to connecting flights to
his chosen destination from these airports. This results in needless waste of time which
is so precious and causes inconvenience to the foreign tourists, who often travel in
groups. The loss of personal effects is an ever present risk during internal flights.
10. The first and foremost suggestion to be made in
this context would be that a number of airports would need to be expanded and modernised
to international standards and serve as models for the others. Many others, for example,
Bangalore, Calicut, Cochin, Goa, Hyderabad and Jaipur would need to be converted into
international airports. Airports at important tourist centres like Agra, Aurangabad,
Chandigarh, Gaya, Jaisalmer and Khajuraho need immediate upgradation to handle bigger
aircraft and more passenger traffic than now.
11. The architecture and designing of airports and
related facilities is a highly specialised job. We do not have such specialist architects
and designing firms or consultants in this country. It would be advisable to enlist the
services of experienced foreign consultants and firms to design our major airports.
For facilitating reliable short-haul services, a
number of airstrips would need to be maintained better. It is estimated that there are 139
such airstrips under the control of State Governments and 121 with the Central Government.
12. According to the Department of Tourism,
Government of India, the international airseat capacity to India would need to be doubled
to enable 5 million tourists to visit India. This calls for permission for chartered
flights to carry passengers to non-designated airports, "adoption of a liberal policy
in allowing capacity expansion by international airlines", capacity additions to
local airlines, etc.
Road Network
13. It is estimated that 80% of the
foreign and domestic tourists make use of the road transport system for visiting different
destinations. However, the condition of Indian roads and of the Indian road transport
system is deplorable by any standards. The absence of good roads and a modicum of comfort
for the traveller makes road journey an ordeal. Since private enterprise has been allowed
to enter the infrastructure sector, particularly highways, the development of highways,
camping sites and motels leading to important tourist destinations may be given high
priority. This would also need fiscal and financial incentives in the form of abolition of
customs duties on import of tourist vehicles, provision of concessional interest , etc.
Hotel
Accommodation
14. The total availability of hotel rooms
in India is 58,000. This is less than the number of rooms in the city of Bangkok alone.
China has over 3.9 million rooms and Indonesia has over 1.5 million. It has been estimated
that hotel accommodation would need to be at least doubled in the very immediate future to
cater to the projected tourist arrivals into the country.
15. Since most of the foreign tourists and local
tourists are not affluent, it would be necessary to create reasonably priced middle range
accommodation like tourist complexes, youth hostels and motels. This, incidentally, points
to the need to harness the resources of the private sector in a big way.
Telecommunications
16. A particular irritant affecting any
visitor to the country is the lack of reliable telecommunication facilities. With the
entire world emerging as a single market place, where production centres and distribution
networks are spread over continents, immediate contact with business associates, relatives
and friends, and travel agents becomes an imperative need for any foreign traveller. This
aspect, it is hoped, will be looked into by the group working on the I.T. sector.
Taxes
17. In a note circulated by the
Federation of Hotel and Restaurant Associations of India at the meeting of the State
Tourism Ministers in New Delhi in August, 1998, it was stated that " the biggest
factor depressing the tourism industry in India is the charging of higher taxes. It has
been seen in many countries that lower taxes induce higher tourism arrivals and longer
stay". Since tourism is of the nature of an export activity, a tax on services
provided to foreign tourists is tantamount to taxing of exports and that too of a
negligible import content. The imposition of Expenditure Tax by the Centre and Luxury
Taxes on hotel rooms by the state governments inflate the accommodation bill of the
foreign traveller. The net result would be diversion of traffic away from India to other
destinations. It is also seen that many states base their Luxury Tax on a ‘rack
rate’ compounding the burden on the foreign tourist.
Land
18. Where the number of hotel rooms has
to be stepped up steeply in the next few years, it is essential that land for building
hotels must become available with ease. At the State Tourism Ministers Conference held in
August 1998, the industry represented that " land for hotels and tourism-related
projects should not be auctioned. Land for hotel use should be reserved and made available
to the promoters on long term graded lease. " Along with this, the floor area ratio
norms for hotels should also be increased.
Industry status
19. The conferral of industry status on
tourism would entitle tourism to secure several advantages, notably in project funding,
exemption from local taxes for the first few years, concessional power tariffs, etc.
Though the Central Government has recognised tourism as an industry, many state
governments have still to accord this facility to hotelling and tourism.
TOURIST FACILITATION AND
SECURITY
Immigration
and Visas
20. The Working Group on Tourism for the
IX Five Year Plan (June 1996) recommended that " the facilitation services available
for visiting India are often the subject of criticism by several tourists. This covers the
entire spectrum of tourist facilities in India. " Visitors have often complained of
the ponderous ways of immigration staff at airports. Obtaining of visa from an Indian
Embassy abroad which should normally take less than 24 hours is more in the realms of
theory than of practice.
21. The luggage handling systems at the airports as
well as the lack of police vigilance outside are also a cause for general complaint. The
unhelpful attitude of police personnel at the airports, the pestering of foreign tourists
by touts and shady hotelkeepers, the rickety taxis and the wily taxi driver create a poor
first image of the country in the foreigner’s mind.
THE REMEDIES
22. While the hurdles confronting the growth
of tourism in India are many, it is surprising that these were left unattended to till
1985. Of late, however, a series of earnest efforts have been made to remedy the
situation. A comprehensive package of policy measures has been developed by the Department
of Tourism in consultation with other wings of the Central Government, State Governments
and Industry Associations. These measures are fully outlined in the following documents:-
National Tourism Policy, 1992
National Action Plan for Tourism, May 1992,
Ministry of Civil Aviation and Tourism
National Strategy for Tourism Development,
Department of Tourism, October 1996
Report of the Working Group on Tourism for the IX
Five Year Plan, June 1996
Draft National Tourism Policy, 1997
Report of the National Committee on Tourism,
Planning Commission, May 1998
Background notes to the State Tourism Ministers
Conference, 6th August , 1998, Ministry of Tourism
OBJECTIVES
23. The draft National Tourism Policy 1997
recognises that development of tourism should promote "greater national integration
and cohesion", project a positive image of the country before the world and confer
social and economic benefits on the community through employment generation and earning of
foreign exchange. In pursuing such development, the objective must be the
"preservation and enrichment of our cultural heritage in all its manifestations"
and result in "accretion of and strength rather than damage to our socio and cultural
values. The promotion of tourism should not be at the expense of environment and
ecology".
24. The draft policy rightly places emphasis on
promoting both domestic and foreign tourism and projecting the ancient as well as the
modern face of India.
POLICY
FRAMEWORK
25. Tourism is no longer a mere leisure
industry. The economic and social benefits of tourism are immense. Tourism consists of
several goods and services catering to a wide range of interests. While the primacy of
religious and cultural tourism would remain for a long time, and would need to be
preserved, other emerging forms of tourism have to be actively promoted to cater to the
changing needs of the tourist market.
26. The draft National Tourism Policy recognises
that "the development of tourism....cannot be the responsibility of any single
agency. It is also not possible to have any artificial demarcation of responsibilities
between the Central and State Governments......the policy, therefore will be to develop
tourism as a common endeavour and all the agencies vitally concerned with it at the
Central and State level, public sector undertakings and the private sector and to create
institutional mechanisms for ensuring effective coordination between the relative agencies
at different levels".
27. Considering the vastness of the country, it
would be advisable to develop a selective approach based on travel circuit concept in the
provision of tourism infrastructure. The Central Government should concentrate its efforts
in this direction. However, such selective development should be supplemented by
development of smaller projects through the involvement of local bodies and
non-governmental organisations. New tourist destinations will need to be identified and
developed to channel international tourist traffic to newer areas. Private sector should
be encouraged in developing local infrastructure facilities at tourist centres both on an
individual basis as well as at a collective level through industry associations. To quote
the draft policy (1997) "the industry should also assume collective responsibility
for laying down industry standards and ethics, preservation and protection of source of
tourist attractions, industry training and manpower development, data base creation and
research and preparation of investment guidelines". Since investments in developing
tourism infrastructure have a long gestation period, appropriate incentives should be
extended to the industry to enable it to undertake the provision of infrastructure.
Foreign collaboration and investment in the hotel and tourism related industries should be
welcomed.
28. The Draft National Tourism Policy of August 1997
may be endorsed by the Sub-Committee.
STRATEGY
29. The ‘National Strategy for the
development of Tourism’ drawn up by the Department of Tourism in October 1996 is an
exhaustive enumeration of the specific measures needed on the part of the Central and
State Governments and the Private Enterprise. A feature of this strategy (Appendix 1) is
the package of fiscal and financial incentives to be extended to the hotel and tourism
related industries. These range from project subsidies and tax holidays to be extended by
the State Governments to the financial incentives to be given by the Govt. of India under
the Income Tax Act and Customs Act. The strategy document also proposes interest and
capital subsidies to be extended to projects. Since this list of incentives is fairly
long, it is advisable to refer to Appendix 1 than to have them reproduced here.
It is heartening to note that the Department of
Tourism has decided to accord Export House status to firms in the tourism industry, so
that, they have the incentive of VABAL, etc. Equally heartening is the establishment of
the Tourism Finance Corporation.
30. The ‘holistic approach’ suggested in
the National Strategy (1996) consists of the following elements:-
Integrated development of mega projects
Infrastructure and product development
Development of cultural tourism and
diversification
Strengthening of marketing efforts
Acceleration of human resources development
Expansion of research and computerisation
Enhanced environmental protection, cultural
conservation and tourist facilitation
31. The concept of mega projects is an elaboration
of the earlier idea of selective development of certain chosen centres in an intensive
manner. This concept is a welcome one as it envisages a comprehensive development of the
areas by the Government in co-operation with financial institutions and promoting the
putting up of the "tourism super-structure" by private entrepreneurs. To oversee
land acquisition and orderly development of the basic infrastructure facilities, the mega
project concept suggests the setting up of Area Development Authorities.
32. A list of tourist centres have been identified
in the ‘National Strategy’ for intensive development. (Appendix II) This list
may need some revision taking into account the developments that have already taken place
in some of the centres and for some new centres to be added. There are indeed many
noticeable omissions in the list. The list also includes certain centres where more than
government intervention, private sector can play an effective role.
33. One element of the development strategy outlined
in the National Strategy document may be highlighted here. This refers to the
strengthening of marketing efforts abroad to attract more international tourist traffic.
The image of India as a land steeped in the past has to be changed to one of an ancient
land with a modern face. Increased marketing efforts are necessary for this purpose.
34. In the area of human resource development, the
country experiences substantial inadequacy. The report of the National Committee on
Tourism places considerable emphasis on this requirement.
ACTION PLAN
35. A national action plan on tourism was
prepared by the Ministry of Civil Aviation and Tourism in May 1992 (Appendix IV). This
action plan would need to be updated in the light of later developments and the policy
announcements made by the Government in the past few years. The sub-committee may
undertake the exercise of revising the 1992 Action Plan.
36. In the area of tourism development
considerable spadework has already been done by the Department of Tourism and the Planning
Commission in chalking out policy and strategy. A number of general and specific
recommendations are contained in the various documents listed earlier in this paper. The
task before the sub-group would be to look into the earlier documents and workout a 5 year
action plan.
37. It would be rewarding to look into the
conclusions and recommendations of the National Committee on Tourism (Planning Commission
1998) to prepare a time bound action plan for tourism development (Appendix III).
Immediate Steps
38. To start with the Central Government
can have the fiscal and financial incentives (Appendix I) examined by the Ministry of
Finance expeditiously and announce them within three months.
39. State Governments which have not accorded
‘industry’ status to hotelling and tourism may be asked to do so within three
months. They may also be requested to consider abolition or reduce considerably the luxury
tax.
40. Government may direct the financial institutions
to declare tourism development as a core sector deserving priority status.
41. The Ministry of Urban Affairs may look into the
issue of allotment of government land at concessional rates for the construction of hotels
or tourism related facilities. This may be done very early and an announcement could be
made to this effect in the coming session of Parliament.
42. The Ministry of Environment and Forests may be
asked to examine the question of participation of private tour operators in the management
of facilities in national parks and game sanctuaries.
43. The transfer of the Department of Culture from
the Ministry of Human Resources Development to the Ministry of Tourism and Civil Aviation
to form a new ministry may be considered.
44. The Coastal Regulation Zone (CRZ) Notification,
1991 issued by the Ministry of Environment and Forests, Government of India has been seen
to affect the development of tourism and related facilities in coastal areas. Difficulties
are being encountered in the preparation of coastal zone management plan in the light of
this notification. Some court decisions have also compounded the problem. A fresh look at
this notification with a view to promoting tourism is needed urgently. A group consisting
of representatives from the concerned ministries may be set up to go into this matter.
Five Year
Plan
As for the steps that could be taken
in the next five years, much would depend upon an indication of the availability of plan
allocations for tourism, civil aviation, highways and culture and the reactions of the
government to the ‘Immediate Steps’ proposed above. If Government could let this
sub committee know the magnitude of possible fund allocation and its reaction to the
Immediate Steps outlined above then the sub committee may consider the medium term steps
in the next meeting. This would also enable the sub-committee to make suggestions on how
the efforts of the central and state governments can be effectively supplemented by
private enterprise.
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