Dr. Pradeep K. Dhingra opines on the damaging and insurmountable effects of the pandemic, Covid -19 on the hotel & tourism industry

India’s growth has been on a decline since the last few quarters, and the last quarters’ growth of 4.7% was considered as the bottoming point.  It was expected that financial year 2020-21 would provide impetus to growth. And growth would help us achieve our dream of 5 trillion economy. But due to an unprecedented virus in the World, the most important word on earth is now ‘Lock-down’As we discuss now at this point of time, almost 80% of India is in lock-down.

Tourism and Hotel industry is one of the biggest employment generators in the World alongside construction, textile, and IT industry. In India, tourism provides employment to approximately 30 million people directly and roughly 40 million people, indirectly.  This is one sector along-side aviation where the employment opportunities are in abundance for both genders and is skewing more towards women.

Hotel and Tourism Industry was not doing well from 2008-2009 till 2015-16 despite Common Wealth Games in 2010. However, the industry started to look up in the last three years despite having below expected growth, demonetisation and the general elections in India.

India is becoming the most digitally advanced travelling nation in terms of the digital tools being used for planning, booking, and experiencing a journey. India’s rising middle class and an increase in disposable income has continued to support the growth of the domestic and outbound tourism. On the basis of information received from the Bureau of Immigration, Ministry of Tourism reported foreign tourist arrival in June 2019 was 7,21,905 as compared to 6,83,928 in June 2018; registering a growth of 5.3%. The percentage share of foreign tourist arrival in India during June 2019 among the top 15 ports was highest in Delhi – 22.6%.

Indian tourism and hospitality industry have emerged as one of the key drivers of growth among the service industry. Tourism in India has significant potential considering the rich cultural and historical heritage as well as the, ecology, terrains, and, natural beauty spread across the country. It is also a significant source of foreign exchange for the Country. According to the report of the World Travel and Tourism Council, the direct contribution of travel and tourism to GDP in 2018 was USD 2750.7 billion (3.2% of GDP) and this forecast rose up by 3.6% to USD 4065 billion (3.5% of GDP) by 2029.

The growth of this sector was encouraging and this year was expected to be the best in the last few years. Increase in international and domestic travelling can be gauged from the fact that in Delhi alone, the room capacity has almost doubled in the last few years after the inauguration of Aerocity near the airport. All hotels in Aerocity are either four- or five-star establishments with large room capacity and huge inventories. Despite the addition of multiple chains of four-or five-star hotels near the airport, the city hotels have survived and have given tremendous results. The same is true not only for chain hotels but also for stand- alone hotels as well. Though the Average Room Rent (ARR) remained subdued but the occupancy has been quite reassuring even with these increased capacities. This is the case for every metropolitan city in India. Tourist arrival in India has increased from 8.03 million in 2015 to 10.6 million in 2018-2019, showing a growth of approximately 32%.

Now, the industry is entering into an uncertain stage unless some real strong measures to lift the economy are announced by the Government. Hotel industry is a bit cyclical in nature and except for some tourist destinations which may have tourists around the year.  Business travelers prefer winter and that period is typically from September till March/April. Now the last month of the season burst completely and even April is expected to be quite bleak due to suspension of visas by the Government.  As the overseas tourist arrival is nil and there is no sign of its immediate revival, the chances of collapse are inevitable unless supported by strong economic measures.

Hotels and other activities are capital intensive industries and only bigger players with deep pockets would be able withstand such pain as the fixed costs are quite high which include running and maintenance costs. Hotel operators usually have several loans and chances of defaults are not to be ruled out. 

There are voices already out about comparing the effect of this pandemic to the great depression which was faced by the world in 1930’s. A similar contrast is being made with the Spanish flu when  50-60  million people died and in India death figures were between 10-15 million with a de-growth of 10.5%, highest in our recorded history till date. It may be too early to say  but, it is quite clear that the World may have negative growth in the coming year and as the two largest economies i.e. USA & China are in huge trouble the growth of the World may trip in next 2-3 quarters and full year growth might be in negative.

India has a large population and consumption-based economy with largest young population in the World but, it is not insulated from the World. The impact of the pandemic would be seen in India and growth which was expected to be around 6% for next year might go down to 3-4% or even lower.

With falling growth, the sector which would be mainly affected would be:

  • Hotel & tourism
  • Construction
  • Auto and auto ancillary
  • IT and related services
  • Diamond industry

Since, this is discretionary spending and once things come back to normal, nobody would go out to buy a new house or a new car and travelling would be the last thing on their mind. The economic fall-out would be too large with major defaults which would impact banks and financial sector. Tourism would be badly hit and not just that, but the business of travelling would also be curtailed. The spending budget on travelling would be cut to minimal, which is quite evident from the past experience. 

It looks scary unless the problem is controlled and the action from the government is fast. Many countries in the World have announced a slew of fiscal stimulus and various measures to boost the economies but, till date such package has not been announced by the Government of India and Economic Task Force has not given any advice. Though the Central bank has induced liquidity in the system, the sector specific announcements are yet to be made.

The industry which provides several people with employment opportunity is looking towards the government with the following actions to save their work;

  • Interest subvention for industry
  • Decrease in GST or concession for some quarters
  • Lease rental concessions
  • Deferment or rescheduling of loan
  • FITL and similar measures
  • Rationalization of rates of excise etc. since it is a very highly taxed industry
  • Boost and schemes to improve travel and tourism in India

Unless the measures are announced and implemented at the ground level the results of the sector would have cascading impact not only for hotels but also for allied sectors and activities such as; taxi operators, tour guides, travel agents, handicraft, various vendors, aviation. The image of India as a wonderous, cultural tourist spot in the eyes of the world will be severely impacted as well. Unless fast economic action is not taken, the good work done in the last few years would go down the drain.

Dr. Pradeep K. Dhingra
Founder Pradeep Kumar Dhingra and Co.
Chief Corporate Advisor of Sunair Hotels Ltd.