PKV Kishan, Jagadish Prasad Sahu, Yashobanta Parida
Tourism is one of the worst hit sectors by the Covid pandemic, both in developed and developing countries. Lockdowns and global travel restrictions have impacted economies and livelihoods dependent on tourism and complementary sectors.
According to an IMF report, 2020, before Covid-19, the tourism industry accounted for 10.4% of the global GDP and generated more than 320 million employment opportunities worldwide. In addition, the United Nations World Tourism Organisation (UNWTO) Barometer confirms that the tourism industry is the third-largest export sector, accounting for 7% of global trade in 2019.
Why is the tourism sector important for a country? An OECD 2020 report posits that tourism contributes to economic growth by directly supporting various types of jobs and businesses and strengthening the local communities where otherwise the opportunities may be limited. Thus, as a prolific creator of livelihood opportunities to diverse individuals, including immigrants and minorities, youth and women, across the country, the sector bridges inequality, reduces poverty and promotes socio-economic development.
Tourism also works towards preserving the cultural and natural heritage and enhancing cultural integration among countries. A UNWTO policy brief underscores the importance of tourism in strengthening the Sustainable Development Goals through its interaction with society, economic sectors and natural resources in a country.
According to the World Tourism & Travel Council, in 2019, India’s Travel and Tourism GDP contribution growth (of 4.9%) was the third-highest in the world. The sector contributed 6.9% to the GDP and employed 8.8% of the total workforce in India. Given these baseline figures, what has been the pandemic’s impact on India’s tourism sector?
The impact of Covid-19 on the tourism sector and, in turn, its effect on the GDP is manifold. The direct losses are due to lockdown-induced demand and supply shocks and the lost revenue. Additionally, various supply chains got stymied, foreign exchange earnings stopped, employees were laid off, businesses were shut, and the government’s tax receipts took a significant hit. The Ministry of Tourism reported a 73.7% drop (year-on-year) in domestic tourist visits, and the Bureau of Immigration reported a 75% decrease (year-on-year) in foreign tourist arrivals in 2020.
A National Council of Applied Economic Research (NCAER) report confirms that around 21.5 million jobs were lost during the first three-quarters of FY21. Many marginal businesses, including hotel operators, tour operators and tour guides, are teetering on the edge of collapse. Compared with the baseline, the tourism sector employed only 7.3% of India’s total labour force, and its contribution to GDP was reduced to 4.7% in 2020 (WTTC 2021 Research Report).
Amidst the crises, a few green shoots have emerged. The sector has seen a Z-shaped recovery in recent days. In a Z-shaped recovery, which is an optimistic scenario, recovery is quick after an economic crash, more than making up for the lost activity before settling at the trend line. Thanks to the pent-up demand for travel, as soon as the second coronavirus wave receded and travel restrictions were lifted, people indulged in what is now known as “revenge travel”. Popular and off-the-grid tourist destinations have witnessed a steep spike in tourists arrivals with overcrowding in places like Shimla and Manali.
However, the tourism sector is not out of the woods yet. The National Restaurant Association of India has estimated that almost 40% of restaurants have closed down since March 2020. Further, a plausible threat of the third wave and accompanying restrictions would lead to more closures as cash dries out.
The Centre has extended relief measures under the Atmanirbhar Bharat Package to the sector. The benefits include collateral-free automatic loans to MSMEs, three-month PF contribution waivers to organisations with less than 100 employees and relief from regulatory compliances under various laws. However, the tourism sector has expressed its disappointment due to the government’s failure in providing direct relief to the industry. Liquidity injections via direct cash benefits by the government are the need of the hour.
The uncertainties in foreign travel owing to the ambivalence about vaccinations norms and heightened risk of infections due to the novel variants of the virus proffer an opportunity to the domestic tourism sector. The government and various stakeholders can develop a safe and viable ecosystem for leisure travel within the country. For example, recent initiatives by the tourism ministry, such as, as “Dekho Apna Desh” webinars, aerial photography of iconic tourist sites in India, “stranded in India” portal to help foreign tourists, development of tourism infrastructure, social awareness campaigns, etc, are some steps that must be furthered.
The government, on its part, can cut down on the regulatory compliances required to set up tourism-related ventures. While specific regulatory requirements such as fire safety permit, police licence, employee provident fund and employees state insurance registrations, and food business licence are essential to maintain the interests of consumers and the employees, some others, including post incorporation compliances, professional tax filing requirements, inter-State transport taxes, excise duties and property tax can be relaxed for a specified period.
The opportunity also lies on the supply side, wherein hotel chains, aggregators, bus service providers, etc, redefine their services to suit the new reality by maintaining high levels of hygiene and sanitation. The aggressive rollout of vaccination, comprehensive testing and quarantine rules for unvaccinated travellers, and hygiene protocols remain pivotal for the recovery of the travel and tourism sector.
We might have to resign to the stark possibility that the world will contend with the virus in the foreseeable future. Hence, adaptation and innovation are the ways forward for any industry, particularly travel and tourism, owing to its inherent nature. Newer and evolving models of businesses must be more sustainable and resilient.
(PKV Kishan, Jagadish Prasad Sahu and Yashobanta Parida are Assistant Professors of Economics at the Institute of Rural Management Anand (IRMA), Gujarat; School of Business, University of Petroleum and Energy Studies, Dehradun; and FLAME University, Pune, respectively)