Yet, curiously, the dominant policy debates are all about maximizing GDP growth, with little attention paid to accelerating employment growth. Our economic strategy lens needs to change, focusing on employment growth alongside GDP growth.
In the early years of planned development, the emphasis was on heavy industries producing capital goods. Consumer goods industries were given short shrift. Later, when the consequences of neglecting agriculture caught up with us during the food crisis of the mid-1960s, attention shifted to agriculture and the Green Revolution.
After the foreign-exchange crisis of 1991, attention shifted again, this time to structural adjustment reforms, mainly in industry and trade policy, as well as fiscal policy. But all these shifts in policy were driven by concerns about growth of output, never by the need to optimize employment growth.
The implicit assumption was that if output growth was high, high employment growth would follow. Unfortunately, that did not happen.
If we can now shift our focus from output growth alone to optimizing growth of output and employment, looking at the comparative advantage of sectors through this bi-focal lens, the relative importance of sectors would look very different.
It is in this context that I will make a pitch in this column for tourism and allied activities. This sector has never been considered to have much economic significance, but in fact it has enormous potential that remains mostly unexploited.
India is the fifth largest economy in the world, expected to soon become the third largest. However, it is ranked 39th in the latest World Economic Forum global tourism ranking, with a share of only 1.6% in global tourism income. The share of tourism in the economy is a negligible 0.9%, down from 2.7% in 2019-20; tourism was one of the worst affected sectors in the pandemic.
Also read: India slips 10 spots since 2019 on WEF’s travel & tourism ranking despite growth
However, it is a very employment-intensive sector. The 2022-23 Periodic Labour Force Survey (PLFS) indicates that its share in employment is 5.5%: i.e., more than five times its share in GDP. Also, tourism has strong linkages with allied sectors in terms of both output and employment.
Thus, compared to its 0.9% direct share of GDP, the combined direct and indirect share is 1.8%. Similarly, its direct plus indirect share in total employment, estimated at 76 million persons, is 12.6%, well above its direct share of 5.5% (PLFS 2022-23).
This is the core of the sector’s potential significance. If the direct GDP share of tourism could be restored to its pre-pandemic level of 2.7% of GDP in, say, the next 3 years, then the total share of tourism plus allied activities would be back up to 5.4% The volume of direct plus indirect employment of the sector would then go up 95 million.
If that direct GDP share could be further raised to 5.4%, double the pre-pandemic level, in another three years, then by the end of this decade, the tourism sector could be providing total employment of 195 million. These are not small numbers. Yet, such goals are achievable.
To address the scepticism in policy circles about the possible role of tourism in optimizing both GDP and employment growth, it is useful to look around the world at what it has contributed elsewhere. This column has been inspired by what I am seeing in our sojourn through southeastern Europe, how these countries have leveraged their historical legacies and natural features to maximize tourism revenue and employment.
To take just one example, in a small country of less than 4 million persons like Croatia, which has reached a per capita income level of $23,000, the services sector accounts for as much as 61% of its GDP while tourism alone accounts for 20%, higher than the share of all industry.
This is despite its limited tourism asset, a large Adriatic coastline, which is no comparison for India’s vast coastline, the Himalayas and southern hills, apart from its many game parks, cultural assets, heritage sites and innumerable sites for religious tourism.
Sceptics may still dismiss the potential of the sector in India, arguing that its role in a small country like Croatia is of little relevance to India. However, in China, the manufacturing hub of the world and an economy about five times the size of India’s, tourism contributes 11% of its GDP today, as it did before the pandemic.
So the real reason for the unimportance of tourism in India is neither its size nor lack of potential. Instead, it is a policy failure from the beginning to recognize the potential of the sector in helping optimize both GDP and employment and also earn scarce foreign exchange.
But taking tourism seriously will require not only a whole mindset change among policymakers, but also resources and incentives to put a suitable tourism ecosystem in place, from travel options to hotels to efficient high-quality services at tourism sites.
Hopefully, in her forthcoming budget, India’s finance minister will make a break with the past and provide adequate resources as well as incentives to accelerate the growth of this sector. The payoff in terms of output and employment growth as well as extra forex earnings would be well worth the initiative.