Is the Spending Propensity of Foreign Tourists Travelling to India Declining over Time?
By Dripto Mukhopadhyay
Foreign exchange earnings (FEE) from tourism activities contribute a large proportion of total FEE in India. According to Tourism Statistics of India 2010, a Ministry of Tourism, Government of India, FEE from tourism activities during 2009-10 has gone up by more than 18%. Certainly this is a boosting factor for Indian tourism industry. This high growth in FEE also corroborates the focus of tourism ministry to increase number of foreign tourist arrivals to the country. More or less, one needs to admit that they are certainly successful to a large extent though a setback was observed during the recent global recession.
This article tries to capture a simple yet important point from policy point of view regarding focusing foreign tourists as a major means of boosting Indian tourism industry as well as a means for earning foreign exchange. The analysis in this article is simple which tried to establish or examine whether the increasing trend as observed apparently does really as beneficial as being envisaged. To keep the analysis simple from point of view of comprehending, a few graphical representations are used to answer the queries that arouse in my mind.
The prime question that this article poses is whether the FEE from tourism activities is increasing in tandem with foreign tourists arrivals. The data used for this analysis is from Tourist Statistics of India 2010. The graph presented below (Figure 1) shows the trend of FEE from 1991 to 2010 along with its growth rates over the years. It depicts very clearly that FEE from tourism in India has seen a complete structural change from the year 2002. A sharp increase can be observed till 2008 and again from 2009. The period marked between 2 red dotted lines represent the peak of the global recession and the slow down can be comprehended understandably. The growth rates represents relatively dwindling character though remain at a higher level throughout.
Figure 1: Foreign exchange earnings from tourism activities in India and its growth over time
Figure 2, which represents a comparing movement between Foreign Tourists Arrivals (FTA) in India and FEE, suggests a close association regarding their movement. The exception is the year 2008-09 when FTA has gone down drastically but FEE had not been affected significantly. Figure 3 also suggests that FEE growth always remained above FTA and in most of the years the gap between FTA and FEE is significantly higher in favour of FEE.
Figure 2: A comparison of Foreign Tourists Arrivals and Foreign Exchange Earnings In India
Figure 3: Growth rate of Foreign Tourists Arrivals and Foreign Exchange Earnings from Tourism Activities in India
All these trends raises an expectation the since FEE is increasing and growing significantly, the foreign tourists visiting to India should be spending at a higher rate than earlier. To examine this, FEE per foreign tourists arrival is computed for the entire period of 1991 to 2010. The blue line represents the trend of FEE per foreign tourist arrival during this period. The line shows that during this period per foreign tourist FEE has gone up from a little higher than Rs. 25,000 in 1991 to about Rs 1,15,000 in 2010 at current prices. And the line shows almost a continuous increase during the entire period. However, to understand whether the propensity to spend, which is captured through FEE per foreign tourist visiting India is also suggests such an encouraging trend, the same variable is computed at the constant prices (Base year 2004-05). GDP deflator has been used to convert the variable to real price. The red line in Figure 4 represents the FEE per foreign tourist in real term. The graph suggests that some increase was noticed between the periods 1991 to 2003. A sharp change was noticed only during 2001 to 2003. However, 2003 onwards we observe that per capita spending of foreign tourists has declined in most of the years.
Figure 4: Foreign Exchange Earnings from Tourism Activities in India at Current and Constant Prices
Figure 5: Trend Showing Downward Slope in FEE per FTA in Constant Prices
This poses an important question that if the spending propensity of the foreign tourists travelling to India is declining over the period, especially after the tourism industry peaked up with “Incredible India” campaign, what are the reasons behind that? It requires serious research and much deeper probing to understand the phenomenon in a greater detail. This may have significant implication in future unless we identify the reasons at this point of time and our policy addresses this with proper measure to make the tourism industry of the country more buoyant in nature.