Foreign Direct Investment in Indian Tourism

April 19, 2013 Posted by India Briefing Reading Time: 4 minutes

Apr. 19 – The tourism industry of India is interwoven with the country’s monetary development, and as India’s GDP continues to mature, an increased number of projects are necessary to support the industry in the form of fundamental infrastructure projects (i.e., transportation systems, the development of accommodation centers, etc.). Over the last decade, India has transformed into one of the most popular tourism destinations in the world, largely as a result of the government’s “Incredible India” campaign which showcased India in an adventurous and fascinating light to overseas tourists. This trend is likely to continue as a greater number of Indian cities have seen an increasing number of tourists. As a result, India continues to improve its infrastructure for its numerous overseas guests.

India’s travel and tourism industry generated US$121 billion (6.4 percent of the nation’s GDP) by the end of 2011. It was also responsible for the creation of 39.3 million jobs (7.9 percent of India’s total work force), and is continuing to boom. As such, many international hotel groups and tour operators have decided to take their business to India. The sector is predicted to grow at an average annual rate of 7.7 percent over the next decade.

In 2011 there were nearly 5 million foreign tourists that visited India, with this number growing to around 6.29 million in 2012.

FDI in tourism

In order to stimulate domestic and international investments in the tourism sector, the Indian Government allows 100 percent foreign direct investment (FDI) in its tourism industry for the construction of hotels and similar projects and operations, which includes airport expansion projects (subject to the approval of the Foreign Investment Promotion Board (FIPB)). In addition, a five -year tax holiday is granted to organizations that set up hotels, resorts and convention centers at specific destinations (subject to certain conditions). Various international hospitality companies such as Hilton, Accor and the InterContinental Hotels Group have already announced major venture plans in India over recent years, and the hospitality division is expected to see an additional US$11.41 billion in inbound investments over the next two years.

Types of tourism

Medical tourism
Medical tourism refers to the practice traveling from your home country (typically a greater developed country) to a lesser developed nation for medical care that is provided at a lower price. This is a fast-growing industry in India because of India’s lower prices for key health care treatments (prices are typically up to 30 percent lower in India compared to the United States and the United Kingdom).

India’s medical tourism industry is estimated to increase to around US$20 billion over the next few years, and India has promoted it by way of providing tourists with personal healthcare services. It is projected that the total marketplace for medical tourism will reach US$2 billion by 2015, and this sector is expected to grow at an estimated rate of 30 percent annually until 2015.

An estimated 150,000 foreign tourists travel to India for low-priced healthcare procedures each year.

Rural tourism
Rural India has much to present to humanity as a historic civilization rich in arts, crafts and culture. Thousands of overseas tourists visit rural areas in Rajasthan, Gujarat and south India every year. Exports of local handicraft have boomed as a result, with exports from Rajasthan reaching nearly US$1 million in 2009. India’s handicrafts exports jumped 17.5 percent year-on-year between 2011 and 2012 to US$2.7 billion.

In addition, the union tourism ministry and the United Nations Development Programme (UNDP) have launched tourism projects for the development of rural tourism in India. The UNDP plans to donate US$2.5 million to the project in addition to assisting with capacity building and increasing participation from NGOs, local communities and artisans.

Adventure tourism
This sector of tourism has seen increased attention thanks to India’s vastly different geography and climate. Either on land, in water or in the air, you can enjoy whatever form of adventure you may desire. India’s hilly regions present many opportunities for mountaineering, rock climbing, trekking, skiing, skating, mountain biking and safaris, and the rivers that flow from these mountains are ideal for river rafting, canoeing and kayaking.

As a bonus, the ocean is not far from there and is easily accessible, providing many chances for adventure in the form of diving and snorkeling.

MICE tourism
Meeting, Incentive, Conferencing and Exhibition (MICE) tourism in India offers the businessperson the latest and fastest growing type of international business tourism. This sector caters to a variety of trade meetings, international conferences and conventions, events and exhibitions, and has gradually captured the interests of major hotel brands.

Worldwide MICE tourism accumulates over US$280 billion annually, and, of this, the Asia-Pacific region alone earns US$60 billion. India earns about US$4.8 billion yearly through MICE tourism. To capitalize, the Ministry of Tourism has initiated expansion in this sector by investing a total of INR 2 billion to develop the major cities in India.

India will continue to grow as a hotspot for travel and investment thanks to the positive attitude of the government which has harvested India as a great global investment option.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email india@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across India by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.

Related Reading

An Introduction to Doing Business in India
In this guide, we introduce the basics of setting up and running a company in the country and some of the key issues investors should pay attention to. This issue is currently available as a complimentary download on the Asia Briefing Bookstore.