The global COVID-19 pandemic has had a profound impact on industries worldwide, particularly in the hospitality sector, where global travel and tourism contributed 10.3% of the global GDP in 2019 but almost halved to 5.3% in 2020 as a result of comprehensive restrictions and lockdowns on travel.1
The situation was worse in India where tourism, which made up 5.2% of its GDP in 2019, reduced by almost 80% to just 1.1% of GDP in 2020 – 2021.2
However, after being plunged into the depths of a pandemic, India has seen a robust recovery due to the reopening of borders, vaccination programmes, removal of travel restrictions and economic growth. India has surpassed China as the world's most populous nation earlier this year, and global businesses are recognising India's 'demographic dividend' of a large working-age population. The International Monetary Fund expects India to log a GDP growth of 5.9% this year, outperforming Germany, and the UK.
The Indian government has allowed 100% foreign direct investment (FDI) into the hotel & tourism sector under the automatic route, subject to applicable laws and regulations, and this sector has seen investment from the likes of Thomas Cook, Premier Travel Inn and Cox & Kings out of the UK4. 100% FDI is also allowed in tourism construction projects, including the development of hotels, resorts and recreational facilities. Between April 2000 and September 2022, this sector saw cumulative FDI equity inflow of around USD $16.7 billion which made up 2.6% of all investments into India during this period. In the next 5 years, the Indian government expects the sector to earn USD $50.9 billion.
This increase in investor interest is a key factor into the growth of this sector. Not only are hotel chains investing into India, but private equity funds have also been investing in both domestic and international hospitality companies. This year, the Kotak Realty Fund invested more than INR 1,100 crore (approx. USD $133.5m) in Lalit's Bharat Hotels, whilst the industry as a whole has signed 54 new hotel deals in FY225.
Religion and Tourism
Interestingly, the Jhujhar Group acquired the Fairfield by Marriott Hotel located in Amritsar, which exemplifies the increased investment into India and India's prominence as a destination for religious tourism. The trends between 2016 and 2019 show religious places attract more domestic and foreign tourists than more typical holiday destinations. This is further evidenced by the building of two luxury hotels ahead of the Ram Temple's opening in Ayodhya.
Recognising this trend, the Indian government established the PRASHAD scheme in 2014-2015 under the Ministry of Tourism. This focuses on the development and identification of pilgrimage sites across India to promote religious tourism in India. Between 2021 and 2022, it received INR 150 crore (approx. USD $18.2m) which has increased to INR 2,400 crore (approx. USD $291.4m) in the budget estimates for 2022-2023.
In addition to the PRASHAD scheme, the Indian government proposed a new tourism policy in 2022 with the ambition of making India one of the top five tourist destinations in the world by 2030. It targets to achieve 100 million international tourist arrivals by 2047. Further, exemplifying the government's dedication to the hospitality sector, under the Marketing Development Assistance Scheme, the government provides financial support to hotels and homestays to support the tourism industry. It is not just international tourism under the limelight; domestic tourist visits have been targeted to reach 15 billion by 2047.
The Dekho Apna Desh scheme was launched in 2020 and reinforced in the 2023-24 union budget with the objective to strengthen domestic tourism by investing in and facilitating tourism infrastructure and amenities. Domestic visitor spending in 2022 was estimated at INR 12.3 trillion (approx. USD $149 billion) and this is projected to increase further in 2023 to INR 12.6 trillion (approx. USD $153 billion). Such buoyancy is not limited to the domestic market either as international visitor spending in 2022 was INR 1.6 trillion (approx. USD $19.4 billion), which is forecast to increase to INR 2 trillion (approx. USD $24.2 billion) in 2023 as per the World Travel and Tourism Council, demonstrating the strength in the Indian tourism market.
Moreover, India is hosting this year's G20 which is expected to boost the hospitality sector as delegates from 20 countries will be attending meetings across 50 cities in India. India is also hosting the ICC Men's Cricket World Cup in October 2023. This is the fourth time India will be hosting this global cricketing event, the last time being the 2011 edition. 2011 saw 6.31 million foreign tourist arrivals compared to 5.78 million in 2010, likely due to the recovery of the economy from the 2008 crash and the country hosting a major sporting event.
Against the backdrop of the World Cup and G20 Presidency the Ministry of Tourism has established an initiative called the 'Visit India Year 2023' leveraging the 'Incredible India' brand. Similar to many industries, this has a particular focus on sustainability. Tourists are much more conscious of a business' sustainability policy and attitudes which is reflected in hotel practices. Chains in the Indian hotel industry are seeking Indian Green Building and Leadership in Energy and Environmental Design certifications. With India currently ranking 11th out of 25 on the Cornell Hotel Sustainability Index, there is considerable room for improvement in the sector. However, this presents an excellent opportunity for investors to proactively embrace sustainability and venture into a new and promising landscape.
With a positive economic outlook, favourable government policies, and a renewed focus on domestic and international tourism, India's hospitality sector is poised for a bright future where it is estimated to contribute USD $250 billion GDP from tourism, creating 137 million jobs in the sector and achieving USD $56 billion in foreign exchange earnings by 2030. The industry's ability to adapt, innovate, and leverage its rich cultural heritage will play a crucial role in solidifying India's position as a thriving and sought-after destination for travellers worldwide and may be a perfect time for investors to consider capitalising on this great opportunity. We at Trowers act as trusted advisors for both large-scale investors as well as more specialist businesses, family-owned companies and individuals, and are well placed to assist with any matters in the hospitality, leisure and tourism industry. Please get in touch with our experts from the India Desk who possess extensive knowledge and expertise of the Indian market, or our specialist teams in the UK and the Middle East dealing with hotel and leisure sectors. For any investment or development opportunities in the hotel and leisure sector in the Birmingham market, please get in touch with our market-leading team there.
 CBRE Report – Indian Hospitality Sector: On a Comeback Trail
[2, 4, 5] Ibid