Union Budget FY22: Giving tourism priority this year

By Ajay Shankar

Indian Union Budget 2021-22: In the forthcoming Union Budget, it would be worthwhile trying to shift to a growth trajectory that creates more productive and better-paying jobs. Accelerating the pace of job creation would naturally lead to faster decline in poverty as well as reduction in inequality. The way to do this would be to identify sectors where there is a huge potential for creating better jobs. We need the equivalent of the Production-Linked Incentive (PLI) scheme for creating jobs; an ELI (Employment-Linked Incentive) scheme. An identified job-creating sector would need a scheme crafted specifically for it.

If this approach were adopted, tourism would then become a very high priority sector, which is not the case as yet. India welcomed around 10 million tourists annually before Covid-19, whereas Thailand got around 40 million and China 145 million. India has so much to offer. It should not be difficult to catch up. Notwithstanding the Incredible India advertising campaign, the fact remains that we are not yet the tourist destination that we can and should be. Even wealthy Indians prefer seeing more of the rest of the world, instead of visiting attractive destinations within India. Tourism is labour-intensive and will remain so.

Tourism in India generates around 8% of total employment and around 9% of GDP. A viable strategy with smart policy instruments needs to be put in place to take growth of tourism to a different level and begin catching up.

To begin with, the central government in partnership with states and other stakeholders should identify destinations where a critical mass of hotel rooms and related tourism infrastructure needs to be developed, and then marketed as an attractive destination to global holiday tour operators. Scale would be essential. For any one of these, an airport and the equivalent of the Aerocity cluster of hotels (near Delhi’s international airport) would be required.
Taxes on aviation fuel need to be brought down so that air travel from Delhi to destinations within India, such as Kerala, Odisha or the North-East, should cost less than a flight to Singapore or Dubai. This loss in revenue would be more than made up in the medium term with higher tax revenues that growth in tourism would generate.

For any new destination, attracting private investment is difficult as potential investors do not see demand. The absence of hotel rooms and related infrastructure results in demand not rising. The only way to get over this conundrum is for the state to assume leadership. It needs to prepare a good master plan. Great locations are being ruined by untidy development. Nainital and Mussoorie are good examples. So is the area around the Buddhist holy place of Sarnath. A new global tourist destination must also plan for and provide facilities for interesting things to do after savouring the natural attractions of the place. Agra has not been gaining in the number of night halts on this account. Rajasthan, on the other hand, has been succeeding by offering interesting experiences such as camel rides, etc.

The state government tourism development agency would need to assemble land. At greenfield or underdeveloped sites, the state agency may do what the NDMC and the DDA did a generation earlier to get the two Taj Hotels of Delhi. The land and the basic structure of the building were given for completion and furnishing to run the hotels on a long-term lease with a fixed rental payment or a share of revenue, whichever was higher. These became highly profitable investments over time. Land should also be offered at a fixed price on a first-come basis for development of hotels. Auctioning land is not the right way to proceed as it needlessly pushes up prices. The consumer at an Indian tourist destination should be paying prices for hotel stay comparable to what she would pay in Thailand for similar facilities. The only way to get such an outcome is to have a large number of hotels coming up on reasonably priced land and competing with each other.

For these developments to acquire critical mass, provision of long-term debt is an essential requirement. The need for long-term finance for infrastructure through a development financial institution is being felt. The sooner the government makes this a reality, the better it would be for our medium-term growth prospects. The investment required for developing the tourism potential in India is so large that a separate development financial institution for tourism may well be warranted. The central government needs to make long-term debt available to state tourism agencies backed by their state governments.

The state governments should undertake some degree of islanding of premier tourist locations by providing expressway connectivity from the airport, quality round-the-clock electricity and water supply, better and friendly policing, electric vehicles only for clean air, and attractive and convenient pedestrian areas. Levying higher rates and user charges would be a consequence. The two basics of cleanliness and courtesy in public places are also prerequisites. These are not difficult to achieve with sustained local efforts and would make a huge difference.

This is a good time for developing new global tourist destinations. Construction activity would create jobs and generate demand for industrial goods with a large multiplier effect. This would accelerate recovery considerably.

The author is distinguished fellow, TERI, and former secretary, DIPP