Recently I spent an extended weekend at Shankarpur – one of the frequented beaches on the Bengal coast, though lesser popular than Mandarmani and Digha. The day we arrived in the scorching heat in the afternoon, there was a shabby beach shack (more of a tea stall) on the beach with a local couple selling 5-6 coconuts and across the street was our abode for the weekend. 3-4 families we were … bustling … and the rest of the area deserted. By the evening, though the weather remained equally horrific… we saw a few vendors coming to the beach – some selling titbits, some selling fruits, some selling coconut water, some tea and other beverages and even ice creams (local brands though). By late evening the area was full of people – some tourists (some making quick stopovers), some localites, - even the tea stall from the morning was now selling snacks and offering dinner. Next day early morning this stall and one next to it was ready to serve breakfast – drawing some of the people who had put up with us at the hotel. By late afternoon we had a small carnival type set up on the beach jostling with tourists and localites.
This is just a minuscule example of how the inflow of tourists can set the local economy into motion. This is at the core of what we call "Tourism Led Growth Hypothesis” or TLGH. At the heart of this concept is the capacity of the tourism sector to contribute significantly towards a country's economic growth, through various channels, such as development of and investments in infrastructure, physical and human capital development, job creations, emergence of novel small businesses, higher wage levels for employees within the sector and in other but related industries and last but not the least, forex earnings, [1].
Figure 1: Impact of Tourism Development on the Economy (Source: EFL Research)
For India, the tourism sector has gained significant importance in recent years as it has demonstrated its potential as the most dynamic, intensively growing and promising sectors in the local or regional domain as also from the national and international perspectives [2].
The Theory
The TLEG hypothesis says that tourism-derived development has the power to stimulate economic growth, which is why it is necessary to allocate sufficient number of resources to the tourism industry in comparison to other sectors. It must be kept in mind that a significant volume of investment in this industry is essential in order to induce economic growth since it not only enhances the income of the existing or present workforce but also generates several novel job opportunities for people who are keen on working within the tourism and allied industries. Put in another way, with the expansion of tourism overall aggregate economic growth also takes place (Figure 1) [2]. The theory and its implications for India forms the basis for this study.
Figure 2: Respective Contribution of Travel & Tourism to GDP
Tourism Multiplier Effect
Tourism not only creates jobs in the same industry but also in the tertiary sector and also brings in growth in both primary and secondary sectors connected to the industry. This is referred to as the multiplier effect which, in its simplest form, represents the number of times money spent by a tourist circulates through a country's economy [3].
As depicted in Figure 3, as tourist inflow increases, new hotels come up and it creates employment directly and indirectly. Infrastructure development occurs and as the region earns a name as a popular tourism destination more companies set up businesses in allied industries as also in the hotel industry. This magnifies the revenues earned by the companies as not only the tourists but also the locals start spending more generating more businesses for the tourism and allied industries and boost tax revenue for the government which in turn can flow back to the region in the form of infrastructure development. An all-round growth is witnessed in the region. The same goes for the country as well.
Figure 3: Multiplier Effect of Tourism (Source: Barcelona Field Studies Centre, EFL Research)
Where India Stands
Despite being culturally rich and diverse with a robust economy driven by a substantially large young population and offering destinations with both national and international appeal, India still ranks 9th among the G20 countries [4]. The domestic travel and tourism sector is projected to contribute around 9.1% to the country's total GDP In 2024, which is more than $11.10 trillion. This reflects a 12.1% year on year increase. According to the projections made by the World Travel & Tourism Council (WTTC) this sector will contribute nearly ₹21.15 trillion to India's GDP in 2024, climbing 21% above the levels achieved in 2019 [5].
Figure 4: India Foreign Tourist Arrivals from Mar 1987 to May 2024 [6]
Figure 5: TLG for the Hospitality Sector
At present, India has 170,000 branded hotel rooms while the demand in place is much greater. The requirement is at least 3-4 times of the rooms at present, according to the President of Federation of Hotel and Restaurant Associations of India (FHRAI), Pradeep Shetty who is also struggling to acquire infrastructure status for the industry [5]. Once that is achieved, then a larger number of hotels are likely to come up. The growth potential is immense. With the growth in hospitality will come the growth of associated sectors such as food and beverages, electrical and electronic appliances, ceramics, home textiles, furniture, sanitaryware and FMCG, to name a few. Think about the potential – there will not only be employment generation but also demand creation. Both are potential growth drivers for the economy.
This underlines the need for further development of this sector in terms of favourable policies, infrastructure growth including hospitality, and emphasis on health, safety, environmental sustainability and technology adaptation. The idea is to push the economic growth further.
Figure 6: Parameters Affecting the Tourism Sector
The Way Forward & What India is Doing
To give fillip to government's plans of making India a global tourism hub the Government is encouraging states to develop iconic tourist centres, including spiritual tourist spots to attract business and promote opportunities for local entrepreneurship [7].
Such initiatives as 'Swadesh Darshan" and infrastructure development at tourist destinations including significant expansion of hospitality business in the vicinity of the tourist attractions and at popular tourist destinations have the potential to boost domestic tourism, thus impacting the sector by ₹ 10-15,000cr which in turn could result in significant job creation in sectors such as hotels, restaurants, transportation, and other services related to tourism [5].
Over the last decade, the number of new airports built has touched 75 resulting in the total count of airports rising to 149 (including helipads and aerodromes). The Government's aim is to raise the number airports from 149 to 220 over the next 5 to 7 years [8]. Aviation growth is a key propeller for foreign tourists as well as domestic.
Figure 7: Growth in No. of Airports in India [9]
Significant investments in rail infrastructure, including the introduction of Dedicated Freight Corridors (DFCs) and rise in number of Vande Bharat trains have created a stronger prospect for catering and e-catering businesses besides boosting the tourist inflow [10].
There are 8 new railway line projects that have received approval in India which are waiting to be executed. Their objective is to enhance countrywide connectivity, cut down logistics costs, and support economic growth which will further help in boosting tourism. [11].
Conclusion
Tourism and allied industries can boost economic growth through the multiplier effect. India has long been known for its exotic locations and rich culture and heritage which entice foreign tourists. This together with the fact that India is relatively cheaper than several foreign destinations and the proliferation of affordable luxury hotels has magnified the potential for tourism led growth. Tourists are now looking for newer places to explore within the country and are willing to shell higher amounts out of their pockets to get away from their mundane lives – to take a break and that is where the maximum advantage lies in this segment. Several new areas of tourist attractions are coming up every year.
The government needs to create a lot of awareness about less-visited or "off-beat” locations as they are popularly known. This besides increasing the tourist inflow to these lesser known places and boosting the local economy will reduce the excess burden of tourists at places that are already popular and widely explored, thus widening the base of growth and development. The potential is huge and when exploited adequately can generate substantial growth for the country as a whole and play a big role in making pushing India's GDP higher and propel the country towards its goal to become third largest economy in the world by 2027.
References
I. A. Raifu and J. A. Afolabi, "Revisiting the Tourism-Led-Growth Hypothesis," Asian Economics Letters, vol. 5, no. 1, 2024.
D. Singh and Q. Alam, "Is tourism expansion the key to economic growth in India? An aggregate-level time series analysis," Annals of Tourism Research Empirical Insights, vol. 5, no. 2, 2024.
Barcelona Field Studies Centre, "Tourism Multiplier Effect," 19 Jan 2023. [Online]. Available: https://geographyfieldwork.com/TouristMultiplier.htm.. [Accessed 22 Aug 2024].
Today's Traveller, "Hotelivate significant new report: India State Ranking Survey 2024," 31 Mar 2024. [Online]. Available: https://www.todaystraveller.net/hotelivate-significant-new-report-india-state-ranking-survey-2024/.. [Accessed 20 Aug 2024].
Moneycontrol News, "Budget 2024: Travel industry seeks infra status for hotels, measures to drive domestic tourism," 20 Jul 2024. [Online]. Available: https://www.moneycontrol.com/news/trends/travel/budget-2024-travel-industry-seeks-infra-status-for-hotels-measures-to-drive-domestic-tourism-12773486.html.. [Accessed 16 Aug 2024].
CEIC Data, "India Foreign Tourist Arrivals : CEIC," Jun 2024. [Online]. Available: https://www.ceicdata.com/en/india/foreign-tourist-arrivals-by-countries/foreign-tourist-arrivals.. [Accessed 21 Aug 2024].
S. Sarda, "Budget 2024: Sitharaman's push towards making India a tourism hub; gives specia: ET Online," 01 Feb 2024. [Online]. Available: https://economictimes.indiatimes.com/industry/services/travel/budget-2024-sitharamans-push-towards-making-india-a-tourism-hub-gives-special-mention-to-lakshadweep/articleshow/107321945.cms?from=mdr.. [Accessed 08 Aug 2024].
Press Trust of India, "Civil aviation sector on upswing, 75 airports built in 10 years: Scindia: Business Standard," 12 Jan 2024. [Online]. Available: https://www.business-standard.com/industry/news/civil-aviation-sector-on-upswing-75-airports-built-in-10-years-scindia-124011200764_1.html.. [Accessed 21 Aug 2024].
Press Information Bureau (PIB), "Record Growth in the Number of Airports in India - Number of airports in the country doubled from 74 to 148 in last 9 years - PIB, Govt of India," 23 Apr 2023. [Online]. Available: https://pib.gov.in/PressReleasePage.aspx?PRID=1918943.. [Accessed 21 Aug 2024].
P. Nair, "IRCTC confident in tourism segment growth despite election period setback: CNBC TV18," 19 Aug 2024. [Online]. Available: https://www.cnbctv18.com/market/earnings/irctc-tourism-segment-e-catering-ticketing-revenues-sanjay-kumar-jain-19461617.htm.. [Accessed 22 Aug 2024].
A. Rao, "Newly Sanctioned India Railway Projects Expected to Boost Connectivity, Improve Logistics: India Briefing," 13 Aug 2024. [Online]. Available: https://www.india-briefing.com/news/new-india-railway-projects-expected-to-boost-connectivity-33927.html/.. [Accessed 22 Aug 2024].
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