Indian Market & Trends

Tourism isn’t ‘black’. Don’t punish it

OPINION: The sudden move by the Indian government to demonetise ₹1000 and ₹500 notes has taken most by surprise. Ten days since the momentous day of monetisation, we have had much drama. Queues are back in vogue, if not popularity. Most stores are empty. The wedding season might just as well be called off. Popular anger is indeed growing.

total-indian-currency-in-circulation graphic
Source: RBI
*All USD $ figures in approximations

Under the surface fear of just how personal incomes will be affected. About two-thirds of India’s GDP, ($1.4 trillion or Rs 90 lakh crore), is a cash economy. No one knows how much of it is not taxed. There are estimates that the informal sector – the small street vendors, businessmen, drivers, your daily maid and so on that do not necessarily pay tax – account for about 45% of India’s GDP and nearly 80% of the employment. Taken together, it is safe to assume that much of the cash economy is indeed untaxed.

Add to this the informal financial sector comprising the notorious moneylenders, institutions such as nidhis, hundis, chit-funds that may have a hard time exchanging their currencies. Pronab Sen, a noted economist and country director, India Central Programme of the International Growth Centre, says that India may indeed suffer a permanent erosion in its lending capacity. He made a rough estimation that the informal financial sector matched nearly about 40% of the formal bank lending or nearly 26% of India’s GDP while preparing the 12th Five Year Plan. These numbers are certainly not a joke!

new notes
New Indian currency notes

As for the tourism season, the high season where for most in the industry, most of the annual income has to be earned, those involved are vacillating between an incomprehension of what happened and just plain anger at the potential of so much lost income. Apologists for the government are putting up defences for it, but gone is the vigour of the comeback as just about everyone suffers.

Yes, there is enormous immediate suffering, even leading to deaths. Tourism is suffering like perhaps none else. Foreign tourists at the Taj Mahal have become an endangered species. There is simply not enough cash for Rs 750++ tickets. Just imagine the condition elsewhere. Due to the sudden announcement, they cannot even go to a bank to exchange the money as foreigners do not have Aadhaar card, voter card or PAN card. Their fault, bhakts would say, but it is causing falling incomes for all Indians they were interacting with as part of their travels.

Many tourists who are here are reduced to cancelling all their plans and sitting in hotels as they cannot pay for most activities or shopping they had planned. Cabs wont ferry them. Most restauants, especially outside the main cities, not have even have card swiping machines. And no, help is not at hand. Kerala Tourism is the only one that has announced the setting up of a help desk. Everywhere else, foreign tourists are just ruing their luck. Or cancelling plans.

As for the tourism season, the high season where for most in the industry, most of the annual income has to be earned, those involved are vacillating between an incomprehension of what happened and just plain anger at the potential of so much lost income.

As for domestic tourists, leisure has suddenly been replaced with worry, and parasailing and museum tours are postponed for the moment. Rafting in Rishikesh, shopping in Jaipur, a weekend in Goa, donating cash bundles at Tirupati – they all might just not be the priority right now. Travel is now only when already bought or office paid or an emergency. The disappearance of a parallel economy will surely mean a lower spend all discreet spends, from jewellery to tourism. For those business, especially small businesses in tourism, they could well be looking at losses that extend beyond the immediate high season.

The PM has called for a 50-day grace period. By that time the peak of the tourist season will have ended, but let’s ignore that for the moment.

taj mahalThe worry is for the slightly longer term prospects. Tourism flourishes in societies that have disposable incomes. Sure, it’s better if that’s legit, but in India a significant part was funded by the cash economy. Airlines have already started discounting rates, in a sector where margins are already wafer thin. Hotels and travel agents are shell shocked as they staring a very low season at best. E-transaction companies are overjoyed, but given that they  still are less than 10 per cent of the economy, the gap has everyone worried.

Confidence is down at the moment, again crucial for the tourism sector. People with money worries are unlikely to travel for leisure. Or when they do not have the resources. A lot of the 20 million Indians who travelled abroad last year paid for their tickets in cash. This included lawyers, doctors, entrepreneurs, builders, shopkeepers etc – those who deal mainly in cash. Most of them will relook at how to generate those resources again, and whether they can do it cash anymore. Certainly the government will want them to move to e-transactions, but if taxes are to be paid on the income, will it leave enough for travel? Wedding planners are reporting drastic scaling downs by those who had still been in the planning stage.

If the Indian economy is to shrink momentarily, its lasting effects might stay longer. And hurt tourism quite a bit.

Musafir Namah Bureau

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