14 JOHAR -- Journal of Hospitality Application & Research Vol. 7 No.

GROWTH AND DEVELOPMENT OF INDIAN

TOURISM INDUSTRY

Dr. Mandeep Kaur Nitasha Sharma,

Associate Professor, Senior Research Fellow,
Dept. of Commerce and Business Management, bhardwajnicks@yahoo.com
Guru Nanak Dev University, Amritsar, Punjab
mkaur02@yahoo.co.in

ABSTRACT
The importance of tourism to economic development has been recognized widely due to its
contribution to the balance of payments, GDP and employment. Since last few years, Indian tourism
industry has been growing at a rapid pace and it has vast potential for generating employment and
earning large amount of foreign exchange. So it is imperative to study the growth and development of
Indian tourism industry. In the present paper the growth and development of Indian tourism industry
has been studied. For this purpose, data has been collected from secondary sources such as Bureau
of Immigration, Ministry of Tourism, Govt. of India and World Travel and Tourism Council. To
analyze the collected data, Compound Annual Growth Rate (CAGR) has been calculated. Results
showed that tourism is the largest service industry in India, with a contribution of US$34.008billion
to the national GDP and 7.4 percent to the total employment in the year 2011. India witnessed more
than 5 million annual foreign tourist arrivals and more than 740 million domestic tourist visits in the
year 2011. Moreover, it is suggested that the central and state government should take initiatives to
develop tourism in India.
Keywords: Growth, Development, India, Tourism Industry

Introduction

O ne of the chief reasons that government supports and promotes tourism throughout
the world is that it has a positive impact upon economic growth and development
(Ivanov and Webster, 2006). The growth of tourism in broad term refers to the gradual
evolution of tourism which is considered to be a factor of the productivity for a
country’s economy (Dritsakis, 2004).
The first conscious and organized effort to promote tourism in India was made in
1945 when a committee was set up by the government of India under the chairmanship
of Sir John Sergeant, educational adviser to the government of India (Krishna, 1993).
Thereafter, the development of tourism was taken up in a planned manner in 1956
coinciding with the second five year plan. The sixth plan marked the beginning of
a new era when tourism began to be considered as a major instrument for social
integration and economic development (www.incredibleindia.com).
A national policy on tourism was announced in 1982. Later on in 1988, the national
committee on tourism formulated a comprehensive plan for achieving sustainable
growth in tourism (www.ibef.org). In 1992, a national action plan was prepared and in
1996 the national strategy for promotion of tourism and in 1997, a new tourism policy
was drafted. The policy has recognized the roles of central and state governments,
public sector undertakings and the private sectors in the development of tourism
(http://en.wikipedia.org/wiki/Tourism).

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 Double Blind Refereed Papers
Growth and Development of Indian Tourism Industry 15

Tourism activities are considered to be one of the major sources of economic

growth. It can be regarded as a mechanism of generating the employment as well
as income in both formal and informal sectors (Khalil, 2007). Travel and tourism is
the world’s largest industry and jobs creator across national and regional economies
(Aliquah, 2010). The speedy growth of tourism causes an increase of household
incomes and government revenues through multiplier effects, improvements in the
balance of payments, and growth of the tourism industry (Kareishan, 2010).
Travel and tourism has not only become one of the world’s largest industry but
also grows consistently every year (Gupta and Gupta, 2007). The international tourist
arrivals have shown an uninterrupted growth of 683.3 million in the year 2000 to
940 million in the year 2010. The international tourism receipts have increased from
US$ 475.3 million in the year 1990 to US$ 919.0 million in the year 2010. Tourism
industry is contributing 6.23 percent in the GDP of the country (WTO, 2010).
India was ranked eleventh in the Asia pacific region regarding international tourist
arrivals and 40th overall in the year 2010 (WTO, 2010). Indian tourism industry is
expected to be the second largest employer in the world by 2019 (WTTC, 2009).
Indian tourism industry is growing and it has vast potential for generating employment
and earning large amount of foreign exchange.

Conceptual Background
The tourism and its effect on the economic activities had been discussed by various
researchers worldwide.
Bahamni-oskooee and Alse (1993) studied the Korean tourism industry and
concluded that economic expansion leads to economic growth. Kulendracan and
Wilson (2000) observed a strong reciprocal relationship between international trade
and international travel. Balaguer and Cantavella-Jorda (2002) studied the role of
tourism’s long-run economic development. They confirmed that the tourism is an
important tool for economic growth. Dritsakis (2004) showed that tourism has a long-
run economic growth effect for Greece. Eugenio-Martin et al. (2004) investigated
the relationship between tourism and economic growth for Latin American countries
from 1985 to 1998. The findings indicated that tourism development can contribute to
the economic growth of medium or low-income countries, while such a role is vague
for developed countries. Guduz and Hatemi (2005) found empirical support for the
tourism-led growth hypothesis in case of Turkey.
Oh (2005) studied the Korean tourism and concluded that the increase in tourism
income effects economic growth. Fayissa and Tadasee (2007) using a panel data of
42 African countries, concluded that receipts from tourism industry significantly
contribute to economic growth of Sub-Saharan African countries. Lee and Chang
(2008) found the unidirectional relationship running from tourism towards growth
in case of OECD countries whereas a bidirectional causality relationship exists for
non-OECD countries. These research papers presented the importance of tourism
as a significant growth enhancing factor; but very few studies have highlighted that
16 JOHAR -- Journal of Hospitality Application & Research Vol. 7 No. 2

the tourism can lead economic growth in India. Thus there was a need to elicit the
influence of tourism development on economic growth in India.
Objectives of the Study- Following are the specific objectives of the study:
1. To study the growth and development of tourism industry in India.
2. To study the contribution of tourism sector in GDP and employment in India.

Data Base and Research Methodology

For the data collection, secondary sources have been used such as websites of
Ministry of Tourism of India, Tourism Corporations, Bureau of Immigration, Govt.
of India, World Tourism Organization (WTO), World Travel and Tourism Council
(WTTC) and Annual reports of Tourism Ministry, India. Foreign tourist arrivals
(FTAs) and Foreign exchange earnings (FEEs) data have been taken for the period of
21 years i.e. 1991 to 2011 from the website of World Tourism Organization. Data for
the domestic and foreign tourists’ visits has been taken from Bureau of Immigration,
Govt. of India. Data for GDP and employment has been taken from World Travel
and Tourism Council (WTTC). Compound Annual Growth Rate (CAGR) has been
calculated to analyze the data. The formula used for CAGR is as follows.
CAGR: = ((End Value/Start Value) ^ (1/ (Periods - 1)) -1

Discussion and Analysis of Growth and Development of Tourism

in India
India is full of attractions so lots of tourists visit here. Table no. one presents the
number of Foreign Tourists Arrivals (FTAs) in India during the period of 21 years
i.e. 1991 through 2011 along with growth rates. Tourism in India has registered a
significant growth in recent years. In May, 1992 the National Action Plan for tourism
was announced to motivate private sector for their participation in the tourism sector.
Moreover, the credit for the increase in foreign tourists’ arrival goes to the Planning
Commission because it allotted funds for the development of tourism infrastructure
during the eighth five year plan. There had been a remarkable growth from the year
2002 to 2005 in foreign tourists arrival due to the various efforts made by government
of India including promoting India through the ‘Incredible India’ campaign in overseas
markets which led to increase in tourism growth by about 65 percent during the period
of three years i.e. from the level of 2.38 million in 2002 to 3.92 million in 2005.

Table 1: Foreign Tourists Arrivals (FTAs) in India, 1991-2011

Year FTA in India (in Million) % Change over the
Previous Year
1991 1.67 -
1992 1.86 11.3
1993 1.76 -5.5
1994 1.88 6.9

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 Double Blind Refereed Papers
Growth and Development of Indian Tourism Industry 17

1995 2.12 12.6

1996 2.29 7.7
1997 2.37 3.8
1998 2.36 -0.7
1999 2.48 5.2
2000 2.65 6.7
2001 2.54 -4.2
2002 2.38 -6.0
2003 2.73 14.3
2004 3.46 26.5
2005 3.92 13.3
2006 4.45 13.5
2007 5.08 14.3
2008 5.28 4.0
2009 5.16 -2.2
2010 5.77 11.8
2011 6.29 9.01
CAGR 6.85%
Source: WTO, 2011

For the Indian tourism sector the year 2008-09 has been a year of challenge
and response with a drop seen in number of foreign tourists due to impact of the
global economic crisis, out broken of H1N1 influenza and terrorist attacks at Taj
Hotel and other significant locations in Mumbai. Nevertheless Indian tourism sector
outperformed the global growth of 2 percent in international tourists’ arrival in
2008.
FTAs, in India during the year 2010 were 5.77 million with a growth rate of 11.8
percent as compared to the FTAs of 5.16 million and growth rate of -2.2 percent
during the year 2009. The major reason for growth rate in foreign tourists’ arrival
in the year 2010 was Commonwealth Games. The 9.01percent growth rate in FTAs
for the year 2011 over the year 2009 for India is much better than World Tourism
Organization (WTO)’s growth rate of 7 percent for the world during the same period.
The compound annual growth rate (CAGR) in FTAs in India during the period 1991
through 2011 was 6.85 percent.
Tourism is an important sector of Indian economy and contributes substantially
in the country’s Foreign Exchange Earnings (FEEs) also. Table no. two depicts the
foreign exchange earnings from tourism in India during the period 1991 through 2011
and also its growth rate over previous year.
18 JOHAR -- Journal of Hospitality Application & Research Vol. 7 No. 2

Table 2: Foreign Tourists Arrivals (FTAs) in India, 1991-2011

Year FEE from Tourism in % Change over the
India(in US$ Million) previous year
1991 1861 -
1992 2126 14.2
1993 2124 -0.1
1994 2272 7.0
1995 2583 13.7
1996 2832 9.6
1997 2889 2.0
1998 2948 2.0
1999 3009 2.1
2000 3460 15.0
2001 3198 -7.6
2002 3103 -3.0
2003 4463 43.8
2004 6170 38.2
2005 7493 21.4
2006 8634 15.2
2007 10729 24.3
2008 11747 9.5
2009 11394 -3.0
2010 14193 24.6
2011 16564 16.70
CAGR 11.55%
Source: WTO, 2011

The “Incredible India” campaign was one of the most successful campaign and
its results were reflected in increase in the foreign exchange earnings (FEEs) also.
As highlighted by the table no. two above, the international tourism receipts were
stagnated around 3000 million before the launch of “Incredible India”. After its launch
in 2002, results evidently show the significant growth in foreign exchange earnings.
FEEs from tourism during the year 2010 were US$ 14193 million as compared to US$
11394 million during the year 2009 and US $ 11747 million during the year 2008. The
growth rate in FEEs in US$ terms during the year 2010 was 24.6 percent as compared
to a decline of 3 percent in the year 2009 over the year 2008. But, there is decline in
foreign exchange earnings in the year 2011. Thus, growth rate observed in the year
2010 was substantially high. The compound annual growth rate (CAGR) in FEEs in
India during the period of 21 years i.e. from the year 1991 to 2011 was 11.55 percent.
Table no. three presents the statistics of domestic and foreign tourists who visited
India during the year 1991 to the year 2010. As seen from this table, there has been
a continuous increasing trend in domestic tourist visits, with the compound annual
growth rate (CAGR) of 13.50 percent.

Department of Hotel Management, BIT-Mesra, Ranchi-835215

 Double Blind Refereed Papers
Growth and Development of Indian Tourism Industry 19

The foreign tourists’ visits too have been increasing over the years, though there
was a negative growth in the year 1992 and in the year 2002. The foreign tourist visits
to India during the year 1991 to the year 2011 witnessed a CAGR of 9.56 percent.

Table 3: Domestic and Foreign Tourist Visits to India (Numbers), 1991-2010

No. of Tourists Annual Growth Rate
Year
Domestic Foreign Domestic Foreign
1991 66670303 3146652 - -
1992 81455861 3095160 22.2 -1.6
1993 105811696 3541727 29.9 14.4
1994 127118655 4030216 20.1 13.8
1995 136643600 4641279 7.5 15.2
1996 140119672 5030342 2.5 8.4
1997 159877208 5500419 14.1 9.3
1998 168196000 5539704 5.2 3.7
1999 190671034 5832015 13.4 5.3
2000 220106911 5893542 15.4 1.1
2001 236469599 5436261 7.4 7.8
2002 269598028 5157518 14 -5.1
2003 309038335 6708479 14.6 30.1
2004 366267522 8360278 18.5 24.6
2005 392014270 9947524 7.0 19.0
2006 462321054 11738892 17.9 18.0
2007 526564478 13256637 13.9 12.9
2008 563034107 14380633 6.9 8.5
2009 668800482 14372300 18.8 -0.1
2010 740214297 17852777 10.7 24.2
CAGR 13.50% 9.56%
Source: WTO, 2011

In 1992, a national action plan was prepared which motivated major players of the
tourism sector to boost up tourism industry. After its implementation, there is much
improvement in domestic as well as foreign tourists’ arrival. On 12 March 1993, a series
of 13 bombs led to decline in tourism sector in the year 1994. The credit for increase in
foreign as well as domestic tourists’ arrival in the year 1997 goes to New Tourism Policy
which was framed and implemented strictly by Ministry of Tourism, India. The activities
of bombings like Brahmaputra Mail train bombing in the year 1996; Coimbatore bombings
in the year 1998; terrorist attack on Red Fort in the year 2000; Jammu and Kashmir
legislative assembly attack in the year 2001 and attack on the parliament complex in
New Delhi in the year 2001 affected the international tourist arrivals adversely in India.
In order to increase the foreign tourist arrivals, Tourism Ministry and Government of
India promoted the “Incredible India” campaign jointly in the year 2002. The reasons
for decline in tourism in 2009 were incidents such as the Mumbai terror attacks, global
financial recession, increased cost pressures and increased airfare. But, still the domestic
20 JOHAR -- Journal of Hospitality Application & Research Vol. 7 No. 2

tourists’ visits are at such a higher level compared to the international tourists’ visits.
Apart from that, awareness level of the foreign tourists is in general higher as compared
to the domestic tourists (Wikipedia, 2007). The year 2009 witnessed a growth of 18.8
percent in domestic tourist visits over the year 2008, which is higher than the growth of
6.9 percent in the year 2008 over the year 2007. During the year 2009, the visits by foreign
tourists have shown a negative growth of 0.1 percent over the year 2008, as compared to
an increase of 8.5 percent in the year 2008 over the year 2007.
Table no. four presents direct and total contribution of travel and tourism industry
in GDP of India.

Table 4: Domestic and Foreign Tourist Visits to India (Numbers), 1991-2010

Direct Direct
Total Contribution to Total
Year Contribution to Growth
GDP(US$ Billion) Growth (%)
GDP(US$ Billion) (%)
1991 36.871 2.2 10.568 0.4
1992 37.992 3 11.012 4.1
1993 36.445 -4 11.205 1.7
1994 42.267 15.9 12.469 11.2
1995 49.519 17.1 13.963 7.8
1996 52.544 6.1 15.064 6
1997 60.265 14.5 16.832 8.3
1998 62.804 4.31 17.858 6
1999 68.146 8.5 19.343 8.3
2000 74.332 9.0 21.828 12.8
2001 61.122 -17.7 17.923 -17.8
2002 72.443 18.5 21.453 19.6
2003 81.7 12.7 24.265 13.1
2004 87.154 6.6 25.331 4.3
2005 72.27 -17 22.346 -11.7
2006 73.015 1 25.169 12.6
2007 100.744 37.9 27.725 10.1
2008 68.171 -32.3 29.15 5.1
2009 67.288 -1.2 29.316 0.5
2010 73.312 8.9 31.283 6.7
2011 79.697 8.70 34.008 8.71
CAGR 3.92% 6.018%
Source: Bureau of Immigration, Govt. of India, 2010

Direct contribution to GDP means GDP generated by industries that deal directly with
tourists, including hotels, travel agents, airlines and other passenger transport services, as
well as the activities of restaurants and leisure industries that deal directly with tourists.
It is equivalent to total internal travel and tourism spending within a country less
the purchases made by those industries (including imports) (World Travel and Tourism
Council, 2010). Total contribution to GDP means GDP generated directly by the travel

Department of Hotel Management, BIT-Mesra, Ranchi-835215

 Double Blind Refereed Papers
Growth and Development of Indian Tourism Industry 21

and tourism industry plus its indirect and induced impacts (Tourism Satellite Account,
2010). Indirect contribution of tourism industry to GDP can be calculated by calculating
the difference between total contribution and direct contribution. The total contribution
of travel and tourism industry to GDP increased from US$36.871 billion in the year 1991
to US$79.697 billion in the year 2011. It was highest in the year 2007 i.e. 100.744 billion.
Total real growth rate has been in the range from -32.3 percent to 37.9 percent during
these 21 years. Direct contribution in GDP has been in the range from -17.8 percent
to 19.6 percent. The compound annual growth rate (CAGR) of direct contribution of
tourism industry to GDP was 6.018 percent whereas compound annual growth rate of
total contribution to tourism was 3.92 percent in India during the year 1991 to the year
2011, which clearly reflects the contribution of the travel and tourism industry.
Tourism sector also plays an important role in creating job opportunities both in
direct and indirect ways. The Indian government seeks to develop the employment
in the tourism sector by setting development plans and international collaborations.
Table no. five presents the total and direct contribution of travel and tourism industry
to the employment. Direct contribution to employment means the number of direct
jobs within the Travel and Tourism industry.

Table 5: Total and Direct Contribution of Travel and Tourism Industry to

Employment, 1990-2010
Year Total Job Total Real Direct Job Direct Real
Opportunities (000) Growth (%) Opportunities (000) Growth (%)
1991 37404.3 6.4 15265.1 8.6
1992 42384.5 13.3 17733.7 16.1
1993 41003 -3.2 17975.7 1.3
1994 42167.6 2.8 17884.8 -6.5
1995 43366.3 2.8 17691.4 -1
1996 43192.9 -0.3 17642 -0.2
1997 45897.3 6.2 18373 4.1
1998 46749.2 1.8 18872.3 2.7
1999 47969.4 2.6 19175.4 1.6
2000 48235.2 0.5 23621.5 23.1
2001 40227.7 16.6 20038.3 -15.1
2002 45184.9 12.3 22071.1 10.1
2003 48059.9 6.3 23271.1 5.4
2004 48739.3 1.4 23463.1 0.8
2005 41803.5 -14.2 22086.9 -5.8
2006 420277.1 0.5 24396.2 10.4
2007 47955.4 14.1 23569.8 -3.3
2008 38713.8 -19.2 25458.8 8
2009 36740.9 -5 24590.3 -3.4
2010 36783.2 0.1 24335.1 -1
2011 37654.7 2.36 24931.3 2.44
CAGR 0.03% 2.48%
Source: World Travel and Tourism Council Statistics, 2011
22 JOHAR -- Journal of Hospitality Application & Research Vol. 7 No. 2

Total contribution to employment means the number of jobs generated directly in

the Travel & Tourism industry plus the indirect and induced contributions. Table five
shows that total contribution of travel and tourism industry to employment has been
increased from 37404.3(000) to 37654.7 (000) from the year 1990 to the year 2011. It
was highest in the year 2004 i.e. 48739.3(000). Total real growth rate has been in the
range from -19.2 percent to 16.6 percent during these 21 years.
The reason for high real growth in direct job opportunities was the investment
made by central government in hospitality sector, airlines and other passenger
transportation services in the year 2000. On the other hand in the year 2001,
government invested only in induced and indirect activities to motivate the tourism
sector and ignore the investment in direct job opportunities due to lack of finance
(Planning commission, 2007). The collaboration with international players e.g.
Action Plan on tourism cooperation between India and Singapore in 2009, Action
Plan between India and Russia in 2008 and collaboration of India and Indonesia
in hospitality sector raises the direct job opportunities in the year 2006. The direct
contribution of travel and tourism industry to the employment increased from
15265.1(000) to 24931.3(000) from the year 1990 to 2011. The direct contribution
of travel and tourism industry to employment was highest in the year 2000 with
23.1 percent share in Indian economy. Total real growth rate has been in the range
from -15.1 percent to 23.1 percent during these 21 years The CAGR in direct job
opportunities was 2.48 percent whereas CAGR in total job opportunities was 0.03
percent in India during 1991 to 2011.

Conclusions and Suggestions

Tourism is one of the key sectors of the Indian economy leading the international
trade in services and representing the leading income activity for many regions.
Tourism industry in India is growing and it has vast potential for generating
employment and earning large amount of foreign exchange too besides giving a
support to the country’s overall economic and social development. Tourism in India
should be developed in such a way that it accommodates and entertains visitors in a
way that is minimally intrusive or destructive to the environment. Moreover, since
tourism is a multi-dimensional activity, and basically a service industry, it would
be necessary that all wings of the Central and State governments, private sector and
voluntary organizations become active partners in the endeavor to attain sustainable
growth in tourism if India is to become a world player in the tourism industry. The
events like Commonwealth Games and Cricket World Cup have contributed a lot
to promote tourism in India. A policy implication which may be drawn from this
study is that India can improve its economic growth performance by strategically
harnessing the contribution of the tourism industry and improving their governance
performance. Since tourism is an important engine of local development, it is
necessary to increase domestic tourism too in order to have more decentralization of
local development caused by such activity.

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 Double Blind Refereed Papers
Growth and Development of Indian Tourism Industry 23

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Department of Hotel Management, BIT-Mesra, Ranchi-835215