The government has recently announced a package of monetary and fiscal measures to address the concerns of sectors perceived to be slowing down the economy. One segment that has been totally left out of the government largess is the highly labour-intensive tourism and hospitality industry, which is reeling under not only the effects of global slowdown, but more seriously, the dastardly attacks on Mumbai city.
The terrorist attacks in Mumbai could not have come at a worse time; October-April is the peak tourist season in India. Declining incomes and valuations in the West had led to only 1.8 per cent increase in tourist inflow in October 2008, compared to double-digit growth in the last five years. The week after the 26/11 attacks in Mumbai saw thousands of hotel bookings cancelled all over India. The dozen-odd advisories issued by foreign governments to their citizens to desist from travelling to India and the prevailing scare are causing a perceptible fall in tourist-arrivals during the October–December period, as against an increase by 15 per cent in the third quarter of 2007.
Paring of room tariffs was perhaps called for, but what wasn’t were airlines, travel agencies and hotels laying off workers and foreign tourists skipping India altogether and instead going to China, Thailand, Malaysia and Dubai. Not only tourists, even foreign investors and businessmen are shunning India. This is a situation we can ill afford. The tourism industry employs 53 million people directly or indirectly and contributes 6 per cent of the gross domestic product. A fall in arrivals in the tourist season can significantly worsen the economic scenario.
A string of terrorist attacks has taken place in India in the last two years. Making the country safer is a prerequisite for getting visitors and business. Visible action on the security front is required, especially in the metropolitan cities. Somewhat excessive security measures were tolerated in the US after 9/11 since they ensure greater safety. Obtrusive display of security in China does not deter Western businessmen and tourists from going there in droves. The demand of hoteliers to deploy armed policemen in their premises and PC wireless vans outside should be readily met because in the current atmosphere these measures would give a feeling of security to the travelling and business classes .
Not only must stricter security measures be put in place but they also need to be better projected. Repetition of footage and news of the attacks on the Taj and Trident on television channels do not enthuse visitors. Greater self-restraint by the media is called for. Otherwise no amount of effort from our embassies and tourism offices abroad can help build an impression that normalcy is returning to India. The limited public resources and efforts available to us should be spent on conveying that India is of the size of Europe, and events in one corner do not necessarily affect the whole country. We must also a send a message that safety has been increased and the economy is reviving. The return of the English cricket team to resume the Test tour must be highlighted.
The Indian hospitality industry is bruised by the economic slowdown and terrorist attacks. After 9/11 in New York, the London bombings of 7/7 and the train-bombings in Madrid, the governments had come up with sizeable relief packages for their tourism industry. Similarly, major fiscal and financial concessions are required to put back on the rails our hospitality industries. The luxury tax on rooms in states like Karnataka is part of the tariff. The central government levies a service tax of 12.36 per cent on all banquets held in hotels. This is in addition to the 12.5 per cent value-added tax collected by states on food and beverages served at parties, guest rooms and restaurants.
Low occupancy and customer base cannot bring in much revenue whatever might be the rates of such levies. A more reasonable level of imposition might, in fact, fetch higher revenue for both hoteliers and governments. There is a need to revisit the VAT rates. Also, the Centre must assure the states that revenue losses will be partially reimbursed till, say, March 2010.
The recent reduction in the Central Value-Added Tax by 4 per cent will not benefit the hotel and travel industry as most of their services do not attract such a levy. To improve the hotel industry’s access to bank credit, there is no need to persist with clubbing hotels with the real estate industry for purposes of bank lending, as being currently done by the RBI.
Rajasthan, Uttar Pradesh, Madhya Pradesh, Maharashtra, Kerala, Tamil Nadu and Delhi, the states which account for the majority of tourists to India are fortunately not among the states that cannot afford greater fiscal support. The central government must also do its bit. Coincidentally, the countries competing for tourists in Asia also happen to be rivals for attracting Western capital and technology. We in India must act quickly lest we lose out on both fronts.
Ajay Dua is a former secretary, Government of India