Foreign Investment

India’s Tourism Sector: Opportunities and Challenges for Foreign Business

India is one of the oldest civilizations in the world. Tourism in India is a complete package. It not only has exquisite cultural heritage but also snow-capped mountains, rain forests and a vast coastline of beaches. India is geographically and culturally diverse, making it one of the best tourist spots across the globe. India’s tourism sector is one of the highest contributors to the GDP, making tourism one of the key drivers of growth in the service sector in India. India’s tourism sector not only attracts tourists but also foreign investments. The Central Government is making consistent efforts to promote tourism as well as foreign investments in India’s Tourism sector. A foreign business willing to invest in India’s Tourism sector can do so as it is one of the most profitable businesses throughout the year and the government is making continuous efforts to ease doing business in India. If you’re a foreign business willing to invest in India’s Tourism Sector, then this blog is for you as it discusses the Opportunities and Challenges for Foreign Businesses investing in India’s Tourism sector.

Types of Tourism in India

1. Adventure Tourism

Geographical and climatic differences across India attracts adventure tourism. In India, one can have all sorts of adventures from mountaineering, trekking, and paragliding, etc. in the mountains to rafting, canoeing, and etc. in the rivers that flow through the mountains to diving and snorkelling in the oceans. One option for foreign business is to invest in Adventure tourism as many adventure sports are still in the developing phase.

• Spiritual Tourism

India is one of the leading spiritual destinations. Several destinations in India are known for their religious and spiritual significance. A spiritual tour in India can help people spiritually discover themselves. These destinations give tourists experiences that they may have never experienced.

• Rural Tourism

India is rich in arts and crafts, and culture which makes rural India a great tourist spot. Those who have an interest in customary ways of life will be fascinated by a visit to rural India. Rural tourism has still not gained the sufficient spotlight. There still lies scope in marketing rural tourism. Rural tourism may also reduce the absolute dependence on agriculture in these rural areas. Marketing the handicrafts and works of rural artisans will generate better income for them.

• Eco-tourism

Eco-tourism is one of the highest-earning markets in the tourism industry. Eco-tourism means encouraging tourism in wildlife and their natural habitats while maintaining the original nature and having as small an environmental impact as possible. This tourism also encourages sustainable ecological development.

• Medical Tourism

Medical tourism is on a rise in India. India has a huge medical infrastructure and medical treatment is comparatively low from the majority of big countries. Currently, India is promoting medical tourism. After COVID-19, the entire world witnessed India’s dominance in the medical sector thereafter, the medical sector has attracted huge foreign investments.

• MICE Tourism

MICE stands for Meetings, International Conferences and Conventions, Events and Exhibitions. MICE is the latest type of tourism and is growing at a fast pace. It is capturing the eye of major hotels. So investment in MICE tourism will also be beneficial for foreign business.

FDI in India’s Tourism Sector

India has recorded almost 16.60 billion dollars FDI in the hotel and tourism industry from the year 2000-2022. It has further recorded a growth of 26% during the financial year 2021-22. The graph shows an upward trend as the government is taking initiatives to increase investment in the tourism sector. To encourage domestic as well as international investments in India’s Tourism Sector, the government has permitted 100% FDI under the automatic route. This is a green signal for foreign businesses willing to invest in India’s Tourism Sector, as these investments will not require any approval from the government. 100% FDI in the tourism sector is extended to construction projects and projects relating to the development of hotels, resorts and recreational facilities.

Opportunities for Foreign Business in India’s Tourism Sector

The Indian government has realized that foreign investments play a significant role in India’s Tourism Sector. Accordingly, the Indian government has taken steps to increase domestic as well as international investments in tourism.

Some initiatives taken by the government are as follows:

1. Swadesh Darshan Scheme

It is a flagship program launched in 2014-15 by the Ministry of Tourism. The purpose of this scheme is to encourage theme-based tourism, which promotes, develops and capitalizes on India’s Tourist sector. Till March 2022, the Ministry of Tourism had already Rs. 5,500 crores and sanctioned 76 projects across India. In addition to this, the ministry has developed tourism-related infrastructure in more than 500 tourist destinations. The Ministry also sanctioned 10 new projects under the heritage circuit theme in April 2022.

• National Integrated Database of Hospitality Industry (NIDHI)

It is an initiative of the Indian government towards Aatmanirbhar Bharat^[1] (self-reliant India). This initiative uses technology to empower businesses. The purpose of this initiative is to know the hospitality sector’s geographical size, structure and capacity. NIDHI registration will allow electronic delivery of services beneficial to the hospitality unit. It acts as a platform for all hospitality organizations to share ideas and practices and connect with governmental authorities for ease of doing business.

• E-tourist Visa

This initiative was launched by the Indian Government in October 2014 to simplify the process of obtaining a tourist visa by foreign nationals. It promotes tourism in India and in the year 2019 over 23.6 lakh e-tourist visas were issued.

• Advertising Campaigns

The Indian Government is coming up with several campaigns to promote tourism in India. One such campaign is the “Incredible India” campaign. Under this initiative, the government launched its Italy edition of Incredible India Reconnect, 2022 which was a virtual road show to encourage international tourists to visit India. Thereafter, the Ministry of Tourism showcased India’s tourism products in the Arabian travel market in May 2022.

• Tax Incentives

Apart from the above initiatives, the government promotes tourism in India by allowing various tax incentives and exemptions to foreign businesses in India. Section 35AD of the Income Tax Act, 1961 permits an investment-linked deduction for establishment of new hotels under the 2-star category and above. This implies that a 100% deduction is available to the whole or any expenditure of a capital nature other than that relating to land, goodwill and financial instruments.

Apart from the Government initiatives, there are unique opportunities which encourage foreign businesses to invest in India’s Tourism Sector. These opportunities include investing in stay-cations, hostel stays, tree houses, off-the-grid stays and Airbnb. These are the new stay options for tourists apart from hotels. These options allow the tourists to experience a home-like atmosphere while being on vacation. Hostel stays allow young solo travellers to stay at a low price allowing youngsters to explore the new place and socialize at the same time.

Challenges for Foreign Business in India’s Tourism Sector

1. Infrastructure and connectivity

A few tourist destinations in India still lack the proper infrastructure and connectivity. If either infrastructure or connectivity is poor, then the foreign business will face difficulty in surviving. These deficiencies in infrastructure can relate to sanitation, inadequate connectivity to heritage sites, etc. which hamper the tourism of those places. 

• Political Structure

Due to the political conditions, foreign businesses might face difficulty in investing in the tourism sector, especially those tourism areas which involve religious sentiments.

• Social Dialogue

For the success of any business, it is crucial to have a good management-labour relationship to provide quality service. If the social dialogue is lacking, it will be difficult for low-skilled workers to adapt. India somewhere lacks social dialogue to cultural and language barriers.

• Skill Upgradation

A major reason behind the inadequate development of India’s Tourism Sector is the low-skilled individuals in the tourism and hospitality sector. Low-skilled individuals are incapable of providing a world-class experience to tourists.

Conclusion

India’s Tourism sector has huge growth potential. The Indian government is taking steps to ease every restriction and hurdle in the way of the tourism sector and ease doing business in the tourism sector. This is so because tourism is becoming a significant economic force. The government has taken steps to provide e-visa, which is expected to double the inflow of tourists in India. India has an excellent medical infrastructure with skilled medical professionals which makes it a go-to medical destination. With high budgetary allocation, the tourism industry is expected to expand by 2.5%. All this makes India’s Tourism sector favourable for foreign businesses to invest.

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