Tourism Policy

Tourism Policy of India: An Exploratory Study

The objective of this report is to assess the impact of Tourism Policy on the tourism sector and make a preliminary study of the possible impact such policy imperatives might have on the socio-economic fabric of the country. The study, commissioned by EQUATIONS, Bangalore, utilised a methodology involving a historical preview of the evolution of Tourism Policy since 1982, and an exploratory assessment of the impact. The study material included documentation available at EQUATIONS and relevant publications of the Union Government.
The impact assessment of the sectoral policies on the specified sector suffers from a serious methodological problem. Briefly, it may be argued that the development of a sector is not solely dependent on the factors within the sector: it is influenced by the general socio-economic environment, the political system and the overall policy framework.
Thus the study integrates within itself the dynamic aspects of historical changes that are taking place at the macro-economic level. Similarly, Tourism Policy would not have evolved on its own without being influenced by the general tenor of macro-economic policy. Tourism policy thus has a socio-political grounding as much as it has a macro-economic colouring.
The 1980s witnessed the era of liberalisation initiated by the Congress Government at the Centre. The process of liberating the Indian economy from the shibboleths of 'license-permit Raj' culminated in the initiation of the structural adjustment programme in 1992.
"Objectives, Thrusts and Macro-economic Dimensions of the Eighth Plan" endorsed by the National Development Council, clearly outlines the context within which the structural reforms were initiated: "The need to restructure our systems of economic management has become an imperative if India is to emerge as a vibrant and internationally competitive economy in the 90's. Systems of control and regulation, developed for good reasons in the past have outlived their utility and some positively (sic) stand in the way of further progress. Such dysfunctional systems have to be overhauled in the light of emerging realities.
" The process of structural adjustments has brought about far reaching changes in the Indian economy at a breath-taking pace. The impact of these changes over the tourism sector need to be studied in a dynamic context. Nevertheless, the above should not be taken as ignoring the fact that sectoral policy does have a direct and unambiguous impact over the concerned sector.
Tourism Policy, as a statement of intent by the Government, would form the reference point for action and criticism. Any initiative by Government in Tourism by way of legislation or direct investment is envisaged within the framework of Tourism Policy. The debates in Parliament had taken recourse to the received policy of the Union Government while making references to particular cases. The backdrop of a policy always serves as a guideline for further executive and legislative initiatives. It would be cynical to regard these policy statements as mere exercises in eloquence and additions to the already existing volumes of wishful thinking.
Furthermore, Policy statements by Government should be viewed in their evolutionary stance. It would be a negation of the democratic content of our political system to view a Policy statement as a static and rigid formulation, at a point in time, applicable for years to come. Thus, since 1982, various initiatives undertaken by the Government need to be perceived as additions or modifications to the received Policy.
While it may be argued that these changes in the policy are only marginal and superficial from the viewpoint of equity and social justice, it would be an oversimplification to view the latest policy statement as nothing but the "nth" version of the Policy formulated in 1982. Recognising the all-pervading inertia that looms large in matters governmental, one is often tempted to deny the scope for lobbying which makes possible the desired modifications in the policy corpus. In short, policy, as a body incorporating proactive intentions, is amenable to periodic reviews and possible modifications.
The issues stressed in the preceding paragraphs provide the framework within which Tourism Policy needs to be considered. In brief, there is more to policy in tourism than is found in the Tourism Policy. Perhaps, the links within a macro-economic framework need no special mention.

Major Policy Initiatives

The first ever Tourism Policy was announced by the Government of India in November 1982. It took ten long years for the Government to feel the need to come up with a possible improvement over this. Thus the National Action Plan for Tourism was announced in May 1992. Between these two policy statements, various legislative and executive measures were brought about. In particular, the report of the National Committee on Tourism, submitted in 1988 needs special mention. In addition, two five-year plans - the Seventh and the Eighth - provided the basic perspective framework for operational initiatives.
The Seventh Plan advocated a two-pronged thrust in the area of development of tourism, viz., to vigorously promote domestic tourism and to diversify overseas tourism in India. While laying stress on creation of beach resorts, conducting of conventions, conferences, winter sports and trekking, the overall intention was to diversify options available for foreign tourists.
The Tourism Policy, 1982 was more an aggressive statement in marketing than a perspective plan for development. Its main thrust was aimed at presenting India to the foreigners as the ultimate holiday resort. With a view to reach this destination, the following measures were suggested by the Policy:
1. To take full advantage of the national heritage in arriving at a popular campaign for attracting tourists;
2. To promote tourist resorts and make India a destination of holiday resorts;
3. To grant the status of an export industry to tourism;
4. To adopt a selective approach to develop few tourist circuits; and,
5. To invite private sector participation into the sector.
The Planning Commission recognised tourism as an industry by June 1982. However, it took ten years to make most of the States to fall in line and accord the same status within their legislative framework. At the beginning of the Eighth Plan (1992-97), 15 States and 3 Union Territories had declared tourism as an industry. Four States had declared hotels as an industry.
The National Committee on Tourism was set up in July 1986 by the Planning Commission to prepare a perspective plan for the sector. Within the broad framework of the Seventh Plan, the Committee had to evolve a perspective plan for the coming years.
The Committee, headed by Mr. Mohammed Yunus, submitted its recommendations in November 1987. The list of Members was as impressive Mr. S.K. Mishra (Secretary, Department of Tourism), Mrs. Kapila Vatsayan, Mr. K.L. Thapar, Mr. Rajan Jaitley, Mr. A.B. Kerker, Mr. R.K. Puri and Mr Pran Seth. The Committee in its Report recommended that the existing Department of Tourism be replaced by a National Tourism Board. It suggested that there be a separate cadre of Indian Tourism Service to look after the functioning of the Board. It also submitted proposals for partial privatisation of the two airlines owned by the Union Government.
By September, 1987, the Central Government declared more concessions for the sector: these included tax exemption on foreign exchange earnings from tourism (a 50% reduction on rupee earnings and a 100% reduction on earnings in dollars), a drastic reduction in tariff on import of capital goods, and concessional finance at the rate of 1 to 5% per annum.
The Tourism Development Finance Corporation was set up in 1987 with a corpus fund of Rs. 100 crores. Until then, the sector was financed on commercial lines by the Industrial Development Bank of India, Industrial Credit and Investment Corporation of India and other commercial banks.
The National Action Plan for Tourism, published in May 1992, and tabled in the Lok Sabha on 5 May 1992, charts 7 objectives as central concerns of the Ministry:

socio-economic development of areas;
increasing employment opportunities;
developing domestic tourism for the budget category;
preserving national heritage and environment;
development of international tourism;
diversification of the tourism product.,
and, increase in India's share in world tourism (from the present 0.4% to 1% during next 5 years)

As per the Action Plan, foreign exchange earnings are estimated to increase from Rs.10,000 crores in 1992 to Rs.24,000 crores by 2000 AD. Simultaneously, the Plan aims at increasing employment in tourism to 28 million from the present 14 million. Hotel accommodation is to be increased from 44,400 rooms to 1,20,000 by 3 years. Other provisions in the Action Plan include a discontinuance of subsidies to star hotels, encouraging foreign investment in tourism and the setting up of a convention city for developing convention tourism.
The Action Plan envisages the development of Special Tourism Areas on lines of export processing zones. Special Central assistance is to be provided for the States to improve the infrastructural facilities at pilgrimage places. It proposes to set up a National Culinary Institute, and projects a liberalised framework for recognition of travel agents and tour operators.
The Eighth Plan document makes a special mention that the future expansion of tourism should be achieved mainly by private sector participation. The thrust areas as enumerated in the Plan include development of selected tourist places, diversification from cultural related tourism to holiday and leisure tourism, development of trekking, winter sports, wildlife and beach resort tourism, exploring new source markets, restoration of national heritage projects, launching of national image building, providing inexpensive accommodation in different tourist centres, improving service efficiency in public sector corporations and streamlining of facilitation procedures at airports.
The Eighth Plan aims at luring the high spending tourists from Europe and USA. It also envisages a 'master plan' to integrate area plans with development of tourism. This is envisaged to ensure employment opportunities for the local population.
In April 1993, the Government announced further measures aimed at export promotion. The existing Export Promotion of Capital Goods Scheme (EPCG) was extended to tourism and related services. Against the existing 35%, the tourism sector would now pay an excise duty of 15% only on capital goods import, subject to an export obligation of 4 times the cargo, insurance and freight (CIF) value of imports. With an obligation period of five years, this came as a boon to the hotel industry. The cost of construction had also come down by 20%.
In addition to the above policy pronouncements by the Union Government, our planners had envisaged the possibilities of developing specific regions on a zonal plank. Special area programmes like the Hill Area Development Programme and the Western Ghats Development Programme form part of the overall national plan.
The Eighth Plan document stipulates that the strategy in such designated special areas is to devise suitable location-specific solutions, so as to reverse the process of degradation of natural resources and ensure sustainable development. This approach perhaps needs to be integrated into the project of special tourism areas, now being made popular by the Government. Administrative Control and Developmental Compromises The federal principles enshrined in the Indian Constitution require that the tourism sector be treated as a State subject. As such, the Department of Tourism (under the Ministry of Civil Aviation and Tourism at the Centre) undertakes certain promotional and developmental activities with a view to enhance the sectoral potential. The Department has certain regulatory functions to perform involving the hotel industry, travel agencies and tourist operators. Over the years, there has been considerable erosion of powers so far as State Governments are concerned. The sustained campaign for privatisation in all the policy documents has left limited space of operation for the States. The public sector is increasingly being perceived as an agent of inertia than of change and hence the pressure for a hands-off policy. On the other hand, the Union Government has been usurping the powers of the State with some pretext or the other. Promotion schemes, designed at the Centre, are transferred for implementation at the State level. The special Central Assistance, for example, granted for the development of infrastructure at the pilgrim centres, carries with it a pre-defined scheme and mode of execution. Furthermore, there are occasions when the Centre forces the State Governments to extend certain subsidies and concessions to the sector. The terms of such concessions would have been fixed by the Centre and the States would have no choice but to fall in line. For example, during the State tourism minister's conference in December 1991, the States were urged to freeze water and electricity rates for 10 years. They were also asked to exempt certain hotels from local and state taxes for 10 years. Seventeen circuits and destinations were identified under the National Action Plan for development through Central assistance and investment by the States and the private sector. The centres were identified by the Centre and the States were asked to do the needful. There were also times when the federal division of power resulted in operational contradictions. For instance, by 1989, many foreign hotel chains like Hilton, Hyatt, Penta and Kempinski had applied for licenses for investing in India. However, the revenue departments of the respective States failed to locate and allocate land for the construction of hotels. The scheme, thus, fell flat. Curiously, the Union Government was not hesitant to make use of Constitutional provisions when it suited its interests. As has been stated earlier, the Yunus Committee had suggested the creation of the Tourism Board on lines of the existing Railway Board. (Perhaps, it was the brainchild of Mr. K.L. Thapar, then adviser to the Planning Commission, in charge of Transport and Tourism Sector. Being from the Railway Service, it is not surprising that Thapar thought about a 'Tourism Board'). To begin with, the empowered committee of secretaries challenged the idea of creation of a Board. It was said that the Railway Board as an independent entity was created for historical reasons. It would be difficult for tourism to be looked after by a Board, because legally the sector would come under the Industrial (Development) Act. It was also found that such a Board would not be viable financially. In 1991, the think-tank on tourism created by Minister Madhavarao Scindia rejected the idea of a Board in toto. It was emphasised that the Board cannot be in charge of a sector that is basically under the jurisdiction of the States! Scope for Federal Interventions The previous section highlights the dubious ways by which the Centre attempts to hijack initiatives at the State-level. This is achieved essentially by threatening to curtail Central assistance or by cajoling through promises of more financial aid. It is common knowledge that the resource-base of the States is very narrow, making them vulnerable at the negotiating table. However, States have the freedom to resist the Centre's strong- arm tactics, provided State assemblies stand-by the interests of the States. For instance, State legislatures may refuse to freeze water and electricity rates on grounds of revenue generation. In that event, the concerned Chief Minister or the Minister of Tourism may convey the intensity of resistance that he is confronted with, and thus refuse to comply with the Centre's diktats. It is heartening to realise that the States have often exercised their power of self-determination and consequently refused to toe the line drawn by the Centre. This offers enough scope for possible interventions at the federal strata of our political system in matters of policy formulation. Privatisation and its Implications According to the Approach Paper to the Seventh Plan, " there is a vast potential for development of tourism in the country. Tourism should be accorded the status of an industry. Private sector investment will have to be encouraged in developing tourism and public sector investments should be focused only on development of support infrastructure". Thus the seeds of private initiatives were sown during the Seventh Plan. The Government took the matter of privatising the tourism sector seriously by 1988. It was during the tenure of Mr. S.K. Mishra as Tourism Secretary that the talk of inviting private investment into the sector began. The Government permitted foreign equity participation up to 5 1 %in tourism projects. Foreign charters were allowed to operate in the country for the first time. Foreign companies were allowed to repatriate their profits to the extent of 3%. The structural adjustment programme, initiated in June, 1992, paved the way for privatisation in almost all sectors of the economy. The Annual Plan (1992-93) document emphatically enunciated the Government's position vis-a-vis tourism: "(T)he future growth of tourism will have to be achieved mainly through private initiative. The State will contribute to tourism by planning broad strategy of development, provision of monetary and fiscal incentives to catalyse private sector investment." The process of privatisation brought in its wake big investments and private involvement at various levels. As an offshoot, environmental considerations were thrown to the winds and there were instances of large scale human rights violation. The self- correcting nature of policy made provisions for stricter controls in this regard. More seriously, privatisation meant alienation of the majority of our population and their deprivation. Employment generated in tourism is generally seasonal and ill paid. The private sector- induced pockets of tourism had the potential of turning into centres of pollution, drug trafficking and prostitution. Industry Status Granted to Tourism The Seventh Plan proposed that tourism be declared an industry. However, it took time for the States to implement this, even though they agreed in principle. The smokeless industry had the advantage of generating maximum value-added, because of low-cost inputs. The Tourism Policy Statement carried certain provisions in favour of the hotel industry. It stated that there should be provision for depreciation in the balance sheets of hotels. Being an export industry, hotels were to be given excise concessions. The provisions of the Monopolies and Restrictive Trade Practices (MRTP) Act were relaxed for hotels, because any hotel with 300 or more rooms would have incurred an investment of Rs. 25 crores. The document also hinted at lower tariffs for power and water and regulations for easy import of equipment. As a follow-up, hotel and shipping were added to the list of 27 industries exempted from Section 22 A of the MRTP Act. The consequences of declaring tourism as an industry need to be studied in detail. It is not possible to capture its implications in an exploratory work like this. However, it is obvious that the private sector has primarily benefited to a great extent by this measure. Importing Modifications to Policies We have earlier stated that the arena of policy formulation should be self-evaluating and self-correcting. In the case of Tourism Policy, this has proved to be the plus point. As an illustration, the Policy statement of 1982 made no mention of infrastructure development. The successive governments at the Centre failed to create proper tourism infrastructure, thus resulting in loss of traffic. This lacuna was corrected in the National Action Plan. However, much of this change was due to intensive lobbying by such agencies like the Indian Association of Tour Operators (IATO), the Travel agents Association of India (TAAI) and the Indian Hotels and Restaurants Association (IHRA). It is for the voluntary agencies and pro-people forces to exploit the avenue of lobbying at various levels. The environmental implications of tourism development did not form part of the 1982 Policy. The consequences are too obvious to be written about. However, the NAP, 1992 did carry specific provisions for environmental protection and harnessing. From Policy to Cartooning Policy statements may also lead to justifiable flights of fantasy. Two examples would illustrate how policies were used to justify stands taken by the politicians: a. Shri Devi Lal, the then Deputy Prime Minister wanted a 50% discount for farmers at Five Star Hotels run by India Tourism Development Corporation. The scheme had teething problems since it was not easy to distinguish a farmer from amongst the clients who visit such hotels. However, on his insistence, the so-called CHAUPALs recreated a village ambience to the amazement of foreign tourists, who took a liking for them. b. Pursuing the objective of the Seventh Plan to diversify overseas tourism to its logical conclusion was what prompted A&. Jagdish Tytler to float the idea of casinos. It was an attempt to provide some entertainment for foreigners during the evenings. It was said that Indian classical music would not provide much needed entertainment for foreign guests because the artistes spend a lot of time tuning their instruments! Folk dances get over in an hour. So much for our much touted cultural diversity. It is embarrassing to believe that the consultative committee attached to the Ministry of Civil Aviation and Tourism had endorsed the idea. Conclusion Broadly, our successive policy pronouncements in the realm of tourism falls within the "liberalising" framework of the macro- economic policy environment. The Finance Bill, 1988, had assured 50% tax exemption on foreign exchange earnings in the sector, and a further 50% exemption if re-invested. In effect, it amounts to 100% tax concession. Luxury hotels enjoy exemptions of all kinds with a view to encourage tourism earnings. These tax exemptions coupled with provision of soft loans to the sector led to a boom in the tourism related private investment. The Economic Survey 1991-92 aptly summarises the ultimate aim of such incentives for private sector participation: " The Government has tried to expand the economic space in which the people can exercise their initiative and ingenuity. It hopes to do more to expand their opportunities, to enhance their potential. But what shape the economy takes ultimately depends on what the people make of it. In that sense, the future is in their hands." We should not forget that tourism is an industry which emerges in the context of unresolved socio-economic structural issues, such as land distribution patterns or the take over of traditional occupations by modem mechanised capital. Tourism happens to be a source of livelihood for millions in India and aggressive privatisation does not ensure social and economic safety nets. In the face of the unhindered entry of international capital and successive alienation, perhaps, it is difficult to agree that "the future is in our hands"