Tourism Sector in India: Implication of Union Budget 2011-12

Incredible India

Rahul was excited about a gift voucher he had received: it offered free air tickets to any destination in India for two. To his dismay, at the time of booking, he realized the amount he had to pay as ‘fuel surcharges and taxes’ was actually more than six times the amount he had been waivered off. He could not disappoint his wife, as this was a long-looked-forward-to getaway. So he started looking up websites of hotels to check out room tariffs and packages offered. The packages were indeed attractive, but all came with a fine print: a huge chunk of service tax to be levied over the otherwise- reasonable charges.

If you relate with Rahul’s disappointment while you read this, this could be your story too: in the Union Budget 2011-12, the service taxes have been increased for air conditioned restaurants possessing licenses to serve alcoholic beverages and hotel accommodation, in excess of declared tariff of Rs. 1,000 per day.  Moreover, service taxes on air travel have been hiked in domestic and international travel (economy class) by Rs. 50 and Rs. 250 respectively, and on domestic air travel (other than economy) at standard rate of 10% (in line with international travel).

Needless to say, in this situation, the elasticity is strongly negative. This may have been declared to incentivise cashflow to the government, but would act as a major deterrent to air travel and demand of hotels and restaurants. The consumer becomes the ultimate scapegoat.

Although a land of rich cultural heritage and breathtaking natural beauty, India ranks 41st among the top global destinations for international travel. There’s still a long way to go for India to feature among the top ten destinations. The domestic tourist volume in India is also booming, reaching 705 million in 2010. The scope is immense, and the onus is now on the country’s administration to take the correct policy measures.

Ministry of Tourism (MoT) has made concerted efforts under similar campaigns as ‘Incredible India’ in overseas and domestic markets and through Mega Tourism Projects, a judicious mix of cultural, heritage, spiritual, and eco tourism in order to give tourists a holistic experience.

Till date, the Government has identified 38 projects out of which 23 have been sanctioned.

MoT, in coordinating with other ministries such as Railways, Civil Aviation, Road Transport & Highways, Food Processing and Urban Development as well as the concerned State Governments, is looking to maximize the returns from investments in the tourist destinations. In order to meet the huge skill gap in the hospitality industry, the Government has put in place a multipronged strategy which includes strengthening and expanding the institutional infrastructure for training and education. Besides, steps are being taken for skill training of youth in the hospitality sector and providing skill certification.

Tourist Visa on Arrival (TVoA) scheme was launched in January 2010 on pilot basis covering 11 countries: Finland, Japan, Luxembourg, New Zealand, Singapore, Cambodia, Laos, Vietnam, Philippines, Myanmar and Indonesia.

The Government has announced various financial and fiscal incentives for the hospitality sector, including a five-year tax holiday under the Income Tax Act for two, three, and four star category hotels located in all United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage sites (except Mumbai and Delhi) for hotels starting operations from 1st April 2008 to 31st March 2013.

Other incentives include:

  • Relaxation of external commercial borrowings (ECB) to reduce the liquidity crunch being faced by the hotel industry for setting up new hotel projects
  • Allowing FDI up to 100% under the automatic route for the hotel and tourism-related industry
  • Delinking credit for hotel projects from real estate by The Reserve Bank of India , thereby enabling hotel projects to avail of credit at relaxed norms and reduced interest rates.

The government has also launched a voluntary scheme of granting approval to bonafide tour operators, travel agents, tourist transport operators, and adventure tour operators who satisfy certain criteria specified in terms of turnover, infrastructure, and manpower.

International travelers tend to book their stay as well as plan their entire trip online while domestic people are often dependent on travel agencies and tour operators. We, at The Other Home, aim to address the needs of our customers as per their requirements. Our packages and services are designed to suit everyone.

Come, discover India!!

For more details, please see this presentation:

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One Response to Tourism Sector in India: Implication of Union Budget 2011-12

  1. manoj Aggarwal says:

    Anupama and Jassi, You guys do magic together. This blog and the presentation together is something to relish. The hats will have to be doffed!!

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