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Saturday 3 September 2011

Gloom but not doom for Indian hospitality industry

Although the reports about credit crisis in the US economy and debt crisis in the key European markets do not augur well for the Indian travel industry, as they are key source markets, the tourism stakeholders in the country are yet to press the panic button. While telecommunication and IT industries are wary of another recessionary spell due to crisis in these markets, travel and tourism industry in India is not expecting any major impact on the industry, at least in the short term.


However, the current credit crisis could in fact be impact the Foreign Direct Investment (FDI) flow into the developing economies like India.  According to Department of Industrial Policy and Promotion, India, USA ranked third after Mauritius and Singapore among the top three investors in India. The total FDI from April 2000-June 2011 was Rs 640, 886 crore (USD 143,158  million), of which the FDI inflow to hotel and tourism sector between April  2000-June 2011 was Rs 12,427.91 crore (USD 2,758.78  million). Services sector, telecommunication and computer software and hardware are the top three sectors for FDI inflow to India.


DD Sharma, Retail Researcher, Anand Rathi Stock Brokers and Service Ltd said, “FDI inflow in the Indian hospitality sector might not be negatively affected, as slowing economies with low interest rates will find emerging economies like India as better option for investment. For this reason, India’s growing market will offer higher returns to investors from those countries. US economic slowdown may affect India in IT/BPO, or textiles and merchandise exports, etc.”


India receives majority of tourists from European and South Asian countries. “The debt crisis in my opinion would not have a major impact like 2008. The upcoming inbound season is looking fairly stable. However, we need to tread cautiously in some of the volatile markets. Looking at the direct effect on India, it may not be felt much as the Indian inbound dependence on these traditional markets is lesser, as there are countries like Russia, China, Thailand, Malaysia, South Africa, Ukraine, Singapore and Philippines, which today have a sizeable inbound movement into India and one that is growing steadily,” observed Arjun Sharma, Managing Director, Le Passage to India. He hoped that inbound from these markets would well offset the shortfall from the developed world.  “However, I probably see a large drop in the business travel segment from both USA and Europe. Also the trend of decline is a bit more pronounced for luxury and deluxe products, mid-scale products are still selling well,” Sharma added.


Echoing the same sentiments, Rajesh Mudgill, Secretary, IATO and Managing Director, Planet India Travels informed, “The credit ratings will not affect the day-to-day travel and such situations would not actually change the ground reality. The effect might be reflected by way of diverting to short haul destinations and short trips rather than long haul trips. People will travel, but will start spending  cautiously.”


The impact of the present crisis would take some time to reflect here, opines Sreekumar Menon, Managing Director, Chalukya Grace Tours. “Unlike five years ago, when we used to get reservation a year in advance, nowadays the bookings are made two months prior to travel. And hence we are yet to witness any cancellations or dip in the arrivals,” Menon informed.


But there are people who believe that the current credit in the US would impact inbound into India. As one of the top 15 largest creditors to USA with an exposure of over USD 40 billion, no doubt India will be affected by the slowdown with other countries across the region, states Aiden McAuley, Regional Vice President, Asia Pacific, Swissotel Hotels & Resorts. However, the large domestic base would work in India’s favour, he believes.  “India has a  large domestic economy with strong fundamentals and India may still stand to gain from opportunities among the emerging markets,” he adds.


Manav Thadani, Chairman, HVS India believes that if at all there is an impact that would be limited to key metro cities in India. “I would like to clarify that this impact will mainly be felt in the major metro cities and in-particular in the luxury and upscale segment.”


KB Kachru, Executive Vice President - South Asia, Carlson Hotels Asia Pacific, believes that domestic market would keep the industry afloat even in the crisis. “The inbound may go down as companies cut down expenditure. Even the leisure segment, owing to the negative sentiment,  might see a decline. However, we expect domestic travelling to increase and drive  up the numbers. Nevertheless, the rates would come under pressure in the short term.”

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