Indians have historically exported a part of their savings through gold purchases. A much more recent trend is exporting consumption through foreign holidays. Indians last year spent serious moolah on foreign travel, a big chunk of it on leisure. To tighten belts in these trying times, GoI is trying moral persuasion to discourage it.
But curbing holidays overseas for well-heeled Indians is trickier than getting the less affluent to pull back on buying gold. The price of gold works as a deterrent. Over and above this, GoI can raise import duties, as it has done this week. International tourism is another matter. It's not as price-sensitive and it's difficult to design tax measures that do not hurt business travel as well in the process.
But here's the funny thing. Indians may be the fastest-growing segment of international travellers. But they overwhelmingly holiday at home. This exerts an even bigger pressure on the rupee through energy imports. Growth in domestic tourism is riding on rapidly growing aviation and highway infra, which is being shielded by incomplete transmission of fuel prices to consumers. GoI could try moral persuasion here, too. But a better alternative exists in raising fuel costs. The longer fuel prices are kept artificially depressed, the greater is the eventual impact on local tourism. Since effects of a tourism downturn diverge across states, it's felt more acutely among vulnerable economic groups.
An energy crisis tends to show up structural faults in India's tourism industry. Over-dependence on religious tourism makes demand less price-elastic, magnifying effects of a crash in destinations of secular interest. The country needs to diversify its tourism product portfolio for resilience against business cycles as well as sustainability. Given the employment potential of tourism and hospitality sectors, more cooperative federalism is called for to develop infrastructure and skills. India needs to prioritise its domestic tourism potential to counteract outflow from international travel.
But curbing holidays overseas for well-heeled Indians is trickier than getting the less affluent to pull back on buying gold. The price of gold works as a deterrent. Over and above this, GoI can raise import duties, as it has done this week. International tourism is another matter. It's not as price-sensitive and it's difficult to design tax measures that do not hurt business travel as well in the process.
But here's the funny thing. Indians may be the fastest-growing segment of international travellers. But they overwhelmingly holiday at home. This exerts an even bigger pressure on the rupee through energy imports. Growth in domestic tourism is riding on rapidly growing aviation and highway infra, which is being shielded by incomplete transmission of fuel prices to consumers. GoI could try moral persuasion here, too. But a better alternative exists in raising fuel costs. The longer fuel prices are kept artificially depressed, the greater is the eventual impact on local tourism. Since effects of a tourism downturn diverge across states, it's felt more acutely among vulnerable economic groups.
An energy crisis tends to show up structural faults in India's tourism industry. Over-dependence on religious tourism makes demand less price-elastic, magnifying effects of a crash in destinations of secular interest. The country needs to diversify its tourism product portfolio for resilience against business cycles as well as sustainability. Given the employment potential of tourism and hospitality sectors, more cooperative federalism is called for to develop infrastructure and skills. India needs to prioritise its domestic tourism potential to counteract outflow from international travel.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
