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Let the World In

India can earn up to six times as much from tourism as it does today. One reform can make it happen

India is one of the most desirable tourist destinations in the world. Thirty-five UNESCO World Heritage sites–among them the Taj Mahal, one of the “New Seven Wonders of the World”—attract a global audience. India’s many food, dance and religious cultures are enticing. The widespread availability of English speakers makes India a welcome destination not only for Americans, Canadians and the British but also for many Europeans and others who speak English as a second language. Prices in India are very reasonable for visitors from developed countries.

India has tremendous advantages as a producer of tourism, but its tourism sector is far too small. India is underperforming and in the process giving up tens of billions of dollars in foreign exchange revenue that could lift millions out of poverty.

Nearly nine million tourists visited India in 2016 generating foreign exchange revenues of about $23 billion USD annually. At first glance, the figures are impressive. Tourism is one of India’s largest export sectors, beating out such leading sectors as apparel ($17.4 billion, 2014) and medicinals and pharmaceuticals ($13.9 billion, 2014). A more careful examination, however, reveals that India’s tourism sector is small compared to its potential.

The table below shows the top ten countries by international visitors. France leads the list with 84.5 million visitors a year, about ten times the number of visitors to India. The European countries, France, Spain, Italy, Germany and the UK benefit by being close to one another which generates significant mutual tourism. Mexico, Russia and Turkey, however, all have approximately three to five times as many tourists as does India. China has more than six times as many tourists as does India.

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Although India under-performs on the number of visitors it does very well on earnings per visitor. Internal tourism among the European economies tends to be short-term—many tourists are simply driving over the border for a day or two–and so revenues per visitor are low. France, with a world-leading 84.5 million visitors annually, earns just $543 per visitor. In contrast, tourists who visit China or the United States are more likely to fly and to stay for longer periods of time. As a result, China earns $2005 and the United States $2,639 per visitor. Remarkably, India earns more per visitor than does China and almost as much as does the United States, a whopping $2,610. In fact, despite the small number of tourists, India’s revenues per tourist make it ninth in the world for total tourism revenues, just above Mexico. Visitors to India spend a lot of money which makes it all the more remarkable that India has so few visitors.

There is no reason why India should not have as many visitors as does Turkey (39.4 million) or China (56.9 million). At these levels, India would earn $102 to $148 billion annually from international tourism, 4.5 to 6.5 times current earnings. No other export sector has as much room to grow as does tourism.

More money, more jobs

Increased revenues from tourism would directly produce new jobs in restaurants, hotels, museums, and tourist services as well as in hotel construction and transportation. Many other jobs would be created as secondary and tertiary order effects. Some tourism revenues could be allocated to improving roads and other transportation services with important spillovers to many sectors of the economy.

Increased tax revenues from tourism could also be allocated to directly improving tourist sites and services with possible virtuous circles. The Taj Mahal, Amber Fort and Goa beaches, for example, are well maintained but India has hundreds, even thousands, of sites of interest that are not well maintained, managed or advertised. Increased tax revenues from tourism could be used to preserve important places of historical and cultural heritage, such as the Elephanta caves and Chittorgarh Fort. Improving the quality of tourist sites will also draw more tourists, including domestic tourists, and more revenues. Many forts are crying out for restoration. Mumbai beaches would be a better attraction if they were cleaner. Museums could be greatly improved with greater funding. Investments of this kind are likely be self-financing over the long run.

The necessary reforms

How can India increase tourism? One of the easiest methods would be to ease visa requirements. India’s visa requirements are complex and burdensome, and the uncertainty of when and if a visa application will be permitted greatly raises the costs of planning. A US citizen with a valid passport can on the spur of the moment fly to Paris for the weekend—no visa is required. Trips to Berlin, Istanbul or Kuala Lumpur require no advance visa. Americans, Australians, Canadians, Swedes and Italians can all visit 170 or more countries without a visa. Germans can visit 176 countries without an advance visa. In comparison, citizens of any of these countries must spend weeks or months of planning and uncertainty applying for an Indian visa. The new Indian e-Visa was supposed to be an improvement but the e-Visa is nearly as burdensome as the standard tourist visa and it requires additional processing on arrival–which can often take hours in immigration lines after a lengthy flight.

India should immediately lift visa requirements for citizens of the United States, Canada, Germany, France, Korea, Japan, Australia and dozens of other countries. Lifting visa requirements would signal that India is welcoming to tourists and it would increase the number of tourists significantly. Lawson and Roychoudhury (2016) estimate that a visa requirement reduces travel to a country by approximately 70%. Put differently, India’s visa requirements are costing India on the order of $50 billion dollars in annual revenue. Fifty billion dollars, or Rs325,000 crore, is a tremendous cost for a program that has few clear benefits. If 176 countries can allow German tourists to visit without a visa, then so can India.

Visa requirements are often lifted as part of bilateral or multilateral negotiations. Negotiations, however, are time consuming. Moreover, the United States is India’s number one source for foreign visitors but the current Trump administration is unlikely to welcome lifting visa restrictions. Instead, the Trump administration is making it more difficult for visitors to enter the United States, a policy that is reducing US tourism. India should not let other countries dictate the timing of its visa policies. Instead, India should lift visa restrictions immediately and unilaterally. A unilateral mass lifting of visa requirements is not unprecedented. In late 2015, Indonesia lifted visa requirements for 75 countries and the number of tourists increased significantly, consistent with Indonesia’s plan to double tourist visits by 2020.

India’s history, culture and natural wonders are capital resources that can earn India dividends far into the future. Moreover, unlike an oil field, India’s tourism resources are renewable. Indeed, with proper care, India’s tourism resources can grow more valuable with greater use. Lifting visa requirements would increase revenues, create jobs and pull millions out of poverty while broadcasting to the world how proud Indians are of Incredible India!

For more, check out Episode 2 of The Pragati Podcast, ‘The Answer is Tourism’, in which Alex Tabarrok talks to Amit Varma and elaborates on this piece.

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About the author

Alex Tabarrok

Alex Tabarrok is the Bartley J. Madden chair in economics at George Mason University and the co-founder with Tyler Cowen of Marginal Revolution University, an online education platform. He is currently a resident senior fellow with the IDFC Institute.