Foreign Tourists Arrivals to India Reflecting Global Economic Recovery Now

Inbound tourism to India experienced the impact of global economic recession severely starting last quarter of 2008. Though Indian economy apparently showed signs of early recovery towards the end of 2009, other countries were still fighting on how to grapple with recession. However, apart from some of the European countries and Asian countries like Japan, gradually the situation improved towards betterment. Though the countries were still struggling with slow GDP growth, unemployment and other crucial economic indicators, most of the countries started gaining the growth momentum, slowly but steadily.

Indian tourism industry that saw a significant change since beginning of the decade 2000 was hit dearly because of the global economic recession. A sudden dip was observed in inbound tourists to India. And, this was true for every originating country where from tourists visited India. It was expected that the scenario should start changing in a year or two. This was especially true from the perspective of various stakeholders within tourism industry, especially the core ones like hotels, tour operators etc. The hotel prices were slashed significantly with various discounts and incentives on face of recession coupled with fierce competition because of entry of new international as well as smaller domestic players.

However, the scenario did not turn like that. Though economies started moving upwards in most of the countries, especially the developed ones, the impacts were not felt instantly. Anyone worked on tourism demand forecasting for inbound tourists knows that two crucial variables explain substantial part of data variation in tourists’ arrivals to any country. These are income in the originating country (expressed in terms of GDP) and lag of tourist arrivals, i.e., the number of tourists arrived during previous year or so. All other parameters like cost comparison, distance to travel, law and order including terrorist activities etc. do play their role, but to a much lesser extent. But this time, the demand system behaved in a slightly different manner. There was a lag effect that played a crucial role in the system. Increase in income in the originating countries did not show its influence immediately. A look at the data will ensure the explanation in a meaningful manner.

Table 1: Foreign Tourist Arrivals (FTA) in ‘000
 Month 2009 2010 2011 2012 2013 2014
Jan 481 569 624 681 699 720
Feb 490 552 636 677 688 738
Mar 442 512 550 623 640 669
Apr 348 372 438 452 452 504
May 305 332 355 372 384 421
Jun 352 385 412 432 444 492

We find two important points from Table 1 as given above. The data is given for first 6 months of each year starting from 2009 so that no confusion is created regarding the trend. Primarily this is because of the fact that data for 2014 is available till the month of June. So, data for rest of the months for other years may create a noise in the pattern where 2014 data plays a crucial role. The second important reason is Indian tourism is marked with significant periodicity or seasonality which I have mentioned in several of my previous blogs as well as have been clearly established by many research papers. Inclusion of data for other years and not for 2014, may create a problem to identify the proper signals because of seasonality factor.

Two important trends appear from the above data are:

  • In case of each month number of tourists have increased in every year
  • FTA in each month is highest in 2014

These two points simply corroborates the discussion we have previously that there is a slow and steady increase in FTA. To avoid the clutter, I have presented this trend 2012 onward in Figure 1 below. The graph shows clearly that recognizing the seasonality with the crest in Jan-Feb and the trough occurs in May, every year the number of tourists visiting India has increase every year. But does this portray the entire story? The answer is NO. It is too simplistic a conclusion to be made and could have been easily concluded that with economic revival, India’s inbound tourism has also seen an immediate impact.

Slide1

To prove this particular point, let us have a look at the Figure 2 and Figure 3. These two visuals exhibit growth rates in FTA to India and absolute change in growth rate in the same. If one carefully looks at these two visuals, a few points sharply indicate why the change in tourism behaviour did not start during end of 2010 when the world economy stated looking upwards.

Slide2 Slide3

  • In Figure 2, growth rates, year-on-year basis, in almost every month declined since 2009 to 2013. The representing growth rates during 2012-13 is the bottom most line and all other years follow a sequence in decline except February and April during 2011-12
  • While looking at this point one needs to remember that the base number has increased as the year increases; so it growth rates will always have an edge if it belongs to earlier years
  • In Figure 3, the absolute change in growth rates (Y-O-Y basis) are presented. This is similar to “first difference” that we normally consider in econometric modelling which plays crucial role in any trend analysis.
  • The graph shows that the absolute change in growth also behave almost in similar manner to that we identified in case of growth rates. The red line, which represents absolute change between 2012-13 and 2013-14, appears at the top.

This trend clearly suggests that though apparently it looked like that the inbound tourists arrivals to India has recovered the hit from global recession since 2010, the actual recovery has started only in 2014 January onward. Till then it was more of a falsified trend that might create a wrong perception regarding the recovery of the Indian tourism in terms of foreign tourists’ arrivals. This has significant implications for policy making as well as for core stakeholders in the industry. Also, while forecasting FTA, one needs to look into carefully at the variable behaviours. It is quite possible that lag effect might be much higher than generally though of.

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