Beruflich Dokumente
Kultur Dokumente
FOREIGN DIRECT
INVESTMENT IN HOTEL
AND TOURISM SECTOR
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1.2 INTRODUCTION
A Study on Foreign Direct Investment (FDI) in Indian Tourism Dr. P. Srinivas Subbarao
Introduction One of the most notable features of economic globalization has been the increased
importance of foreign direct investment around the World. Some view is as an engine of
economic growth and development while others look upon it as a panacea for all ills. It is,
however, important to weigh the costs and the benefits of FDI to gauge whether FDI has positive
impact on economic development.
FDI has the potential to generate employment, raise productivity, enhancing competitiveness of
the domestic economy through transfer skills and technology, strengthening infrastructure,
enhance exports and contribute to the long-term economic development of the worlds
developing countries. More than ever, countries at all levels of development seek to leverage FDI
for development. We in India see FDI as a developmental tool in all sectors and tourism has no
exceptions. Liberalization policies have led to rapid growth in FDI flows in recent years. Basing
on the benefits associated with FDI several developing; as well developed countries compete
fiercely for FDI. They try to attract foreign investors by providing financial and fiscal incentives,
undertaking corporate restructuring and economic reforms and inviting foreign investors in the
privatization of state-run units. In 2001, for example, 71 countries made 208 changes in their FDI
regulatory regimes, out of which 194 have done to attract higher FDI.
The Government of India has recognized the key role of the foreign direct investment (FDI) and
foreign institutional investment (FII) in its process of economic development, not only as an
addition to its own domestic capital but also as an important source of technology and other
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global trade practices. In order to attract the required amount of FDI and FII, it has bought about
a number of changes in its economic policies and has put in its practice a liberal and more
transparent FDI and FII policy with a view to attract more foreign direct institutional investment
inflows into its economy. These changes have heralded the liberalization era of the foreign
investment policy regime into India and have brought about a structural breakthrough in the
volume of FDI and FII inflows in the economy.
Growth of Indian economy is playing hide and seek with the double digit growth (Gross
Domestic Product) mark. The latter is a key index, which the foreign investors check before
committing large sums of money for investment. Of its own, the Indian economy will find it
difficult to reach this target, except for an occasional burst of activity; like the one in 2003. To
sustain it, outside help is needed and domestic house is to be placed under strict discipline.
Democracy is a great buzzword, if it translates into order and political stability. Labor unrest,
political opportunism and corporate irregularities are a few issues, which tarnish democracy and
discourage outside investors. But the current government in both its terms has opened up the
economy to welcome foreign investment to keep up with the strong domestic demand for quality
goods and services. This has attracted unprecedented amount of foreign investment in the last
decade, but of the two forms of foreign investment foreign portfolio investment (FPI) and
foreign direct investment (FDI), the former has reached our shores much more than the latter.
As FPI essentially interacts with the real economy via the stock market, the effect of stock
market on the countrys economic development will also be examined. Research shows that the
perceived benefits of foreign portfolio investment have not been realized in India. It can be seen
that the mainstream argument that the entry of foreign portfolio investors will boost a country's
stock market and consequently the economy, does not seem be working in India.
The influx of FIIs has indeed influenced the secondary market segment of the Indian stock
market. But the supposed linkage effects with the real economy have not worked in the way the
mainstream model predicts. Instead there has been an increased uncertainty and skepticism about
the stock market in this country. On the other hand, the surge in foreign portfolio investment in
the Indian economy has introduced some serious problems of macroeconomic management for
the policymakers like inflation, currency appreciation etc.
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On the other hand FDI is what the government really needs to attract in various sectors like
infrastructure, education etc. it is much more stable than the foreign institutional investment
which comes via the stock market route, and has more accountability and brings fundamental
and tangible benefits to the economy.
The dependence on FPI is pushing many developing countries, including India, towards a more
stock market oriented financial system. This makes it imperative to evaluate the relative merits
and demerits of a stock market based financial system in a developing country as compared to
the Chinese model where conditions are conducive to foreign investment in the real sector. The
global recession in 2008 proved how volatile the money pumped in by the FIIs into the
secondary segment of the financial market is, leading to huge losses for the domestic investors
who had to bear the brunt even though the economy as such was insulated from the adverse
effects of the recession. Whereas the sectors where there was FDI didnt experience such kneejerk reactions.
In this context, this report is going to analyze the trends and patterns of foreign direct investment
(FDI) and foreign institutional investment (FII) flows into India during the post liberalization
period.
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1.3 HISTORY
In the years after the Second World War global FDI was dominated by the United States, as
much of the world recovered from the destruction brought by the conflict. The US accounted for
around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since
that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve
of OECD countries.FDI has grown in importance in the global economy with FDI stocks now
constituting over 20 percent of global GDP.
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as
factories, mines and land. Increasing foreign investment can be used as one measure of growing
economic globalization. Figure below shows net inflows of foreign direct investment as a
percentage of gross domestic products (GDP).
The largest flows of foreign investment occur between the industrialized countries North
America, Western Europe and Japan. But flows to non-industrialized countries are increasing
sharply.
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The rise of FDI flows in 2011 was widespread in all three major groups developed, developing
and transition economies. Developing economies continued to absorb nearly half of global FDI
and transition economies another 6 per cent.
This graph gives a pretty good indicator of how relative FDI inflows have changed since 2002
we can see that right from the year 2002 there has been an increase in FDI investments in the
developing economies. The increase in the GDP growth or the bull phase which most of the
developing economies experienced from 2003-2008 could be attributed to the increased FDI.
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1.11 Sectors Receiving the Maximum FDI Inflows in Hotel & Tourism
Industry in India
Hotel and Tourism is one of the most booming sectors in Indian economy. It has contributed
heavily in the Gross Domestic Product of India.
100 percent FDI is permitted in the Hotel and Tourism in India under various approvals. Under
Automatic route, FDI is allowed only up to 51 percent in this industry. As per FDI guidelines for
hotel and tourism industry in India, following are the sectors, in hotels, which have been
receiving the maximum amount of FDI Inflows for the past few years:
Restaurants
Beach resorts
As per FDI guidelines for hotel and tourism industry in India, following are the sectors in
tourism which have been receiving the maximum amount of FDI Inflows for the past few years:
Travel agencies
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Up to 3 percent of the net turn over is payable as marketing fee under automatic route 10 percent
of the gross operating profit is payable as management fee under automatic route.
Hotel and Tourism sector is declared as high priority sector and Foreign Direct
Investment (FDI) upto 100%, under the automatic route is permitted in Hotels & Tourism
Sector, subject to applicable laws/regulations, security and other conditionalties.
As per report received from Department of Industrial Policy & Promotion, the details of the FDI
equity flows from April 2008 to January 2012 in the hotel and tourism sector is as follows:
Sl.No.
Year (Apr-Mar)
FDI (` in crore)
1.
2008-09
489
2,098.23
2.
2009-10
582
3,566.32
3.
2010-11
403
1,405.15
4.
2011-12 (Apr-Jan)
427
4,041.28
1901
11,110.98
Grand Total
The FDI has been allowed with an objective to encourage investments in the hotel sector in India
and to create job opportunities in hospitality sector.
This information was given by the Minister of State for Tourism, Shri Sultan Ahmed in a
written reply in Lok Sabha today.
The Indian tourism has experienced a growth of 24.6% during 20092010 timeframe. The
industry is the third-largest foreign exchange earner, accounting for 6.2% of Indias GDP and
8.8% of Indias total employment, according to a report by the Planning Commission. It has
significant linkages with other sectors such as agriculture, horticulture, transportation,
handicrafts and construction. The tourism industry includes travel agencies, tour operating
agencies and tourist transport operating agencies; units providing facilities for cultural, adventure
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and wildlife tourism; surface, air and water transport facilities for tourists; and
convention/seminar units and organizations.
According to the Planning Commission, the sector creates more jobs per million rupees of
investment than any other sector of the economy and is capable of providing employment to a
wide spectrum of job seekers, from the unskilled to the specialized, even in the remote parts of
the country. The sectors employment-generation potential has also been highlighted by the
World Travel & Tourism Council (WTTC), which says Indias travel and tourism sector is
expected to be the second-largest employer in the world, employing 40,37,000 people, directly or
indirectly, by 2019.
Travel and tourism is a USD 32 billion business in India, according to industry estimates; in
addition, the
The Indian tourism sector includes medical and healthcare tourism, adventure tourism, heritage
tourism, ecotourism, rural tourism and pilgrimage tourism. Medical tourism also known as health
tourism has emerged as an important segment, owing to Indias skilled healthcare professionals
and the lower cost of healthcare facilities in the country. Wellness tourism is regarded as a subsegment of medical tourism and it involves the promotion and maintenance of good health and
well being. India, with its widespread use of Ayurveda, Yoga, Siddha and Naturopathy,
complemented by its spiritual philosophy, is a well-known wellness destination.
Heritage tourism is oriented towards exploring the cultural heritage of a tourist location. India is
well known for its rich heritage and ancient culture. The countrys rich heritage is amply
reflected in the various temples, majestic forts, gardens, religious monuments, museums, art
galleries and urban and rural sites.
Due to its varied topography and distinctive climatic conditions, India is endowed with various
forms of flora and fauna, and it has numerous species of birds, mammals, reptiles, amphibians
and plants life on offer for tourism. Wildlife tourism includes wildlife photography, bird
watching, jungle safari, elephant safari, jeep safari, jungle camping, ecotourism, etc.
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Several other initiatives undertaken to promote different tourism products include the following:
Rural tourism: Rural tourism showcases rural life, art, culture and heritage at rural
locations. The existing scheme for destination development supports the development of
infrastructure in rural areas. Under this scheme, the thrust is on promotion of village
tourism as a primary product to spread tourism and its socio-economic benefits to rural
and new geographic regions. The Ministry of Tourism has joined hands with the UNDP
for capacity building around 153 rural tourism projects have been sanctioned in 28
states/Union Territories including 36 rural sites where UNDP offers support in capacity
building. Under the Visit India 2009 scheme, around 15 rural tourism sites were selected
as rural eco-holiday sites.
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CONCLUSION
There are certain points which make India a hot destination for investment in tourism
department. First is the positive attitude of the government, who has allowed 100 percent FDI in
this sector. Last year in the Indian union budget 2010, the Indian government has given more
than INR 1000 crore to the Ministry of Tourism. Second, the tax holidays are being given to the
organizations who want to invest in this sector. All this makes Indias tourism industry a great
investment option.
Tourism industry in India is growing and it has vast potential for generating
employment andearning large amount of foreign exchange besides giving a fillip to the countrys overall
economicand social development. But much more remains to be done. Eco-tourism needs to be promoted sothat
tourism in India helps in preserving and sustaining the diversity of the India's natural andcultural
environments.
Tourism in India should be developed in such a way that it accommodatesand entertains visitors
in a way that is minimally intrusive or destructive to the environment andsustains & supports the
native cultures in the locations it is operating in. Moreover, since tourism isa multi-dimensional activity, and
basically a service industry, it would be necessary that all wingsof the Central and State
governments, private sector and voluntary organisations become
active partners in the endeavour to attain sustainable growth in tourism if India is to become a w
orld player in the tourism industry.
Tourism Industry is a very dynamic industry and so are its challenges and strategies, therefore
alearning approach towards best-practices would yield better results in enhancing competitivenessof this industry.
Also, the need for sound perspective in planning and private-publiccommunity participation is imperative for this purpose. This paper was an attempt to illuminate t
he areathrough simple yet effective examples and cases collected from around the world, based
on their contribution in making their respective Tourism Industry more competitive. It leaves a backgroundfor
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