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Weak rupee to offer cushion to tourism sector: Nirmal Bang

While the depreciation of the Indian rupee against the US dollar has hurt several sectors, the tourism sector is seeing increased inflows of foreign tourists into the country, says Nirmal Bang's research report.

September 23, 2013 / 05:13 PM IST

Rising crude oil prices and domestic economic woes have led to the rupee's decline against the dollar by 20 percent this year with no bottom visible yet.


The rupee slumped to a lifetime closing low in the previous month, which incidentally also is the biggest single-day decline in 20 years. There is more bad news in store. Analysts predict the rupee to crash to Rs 70 per US dollar, leading to warnings that the Indian economy could face a full-blown crisis.


While the Indian currency's free fall may have spooked the markets as well as policymakers, there are a few sectors that stand to gain from the rupee's appreciation. The tourism industry for instance is looking forward to a good season. With the exchange rate going in favour of foreign visitors, tourists get a higher value for the US dollar.


A stronger US dollar means increase in a tourist's purchasing power and this in turn will attract more tourists to India. In India, the tourist season begins from September till March, when about 60 percent of the total foreign tourists visit the country. India gets about 6.5 million foreign tourists every year mostly from USA, Europe, Bangkok, Vietnam, Myanmar and the Middle East.


As per a report in a leading business daily, according to the Indian Association of Tour Operators (IATO), which has over 1,600 members, the weak Indian currency will provide comfort to the tourism industry, which has seen outgoing traffic hit by almost 25 percent. “This is a key season for us and the weak rupee will certainly provide the cushion to the industry. We are seeing foreigners extending their stay in India as they get to buy a lot more at a cheaper rate now,” explained Gour Kanjilal, a former official of the tourism ministry.


One tourist place, which is a favourite among foreign tourists, is Goa. With the rupee appreciating, the state has become 15 percent to 20 percent cheaper than last year. Reports in newspapers suggest that many five-star hotels in Goa are seeing a rise in bookings from abroad. The other fallout of the rupee depreciation is that Indian tourists headed abroad to Europe, North America, Dubai, Singapore and Thailand have cancelled their plans and instead are looking at holidaying within India.


As per a report in a leading business daily, domestic tour operators will be affected by this. However, it will bring cheer to the stagnant hospitality sector in the country. Industry lobbying body, the Associated Chamber of Commerce and Industry of India (Assocham) says the rupee's slide has contributed to a 35 percent surge in domestic tourism between January and June and a 15 percent to 20 percent fall in outbound tourism over the same period.


Rough estimates suggest that around 15 million Indians take their vacations overseas each year. But because of the rupee slide, these 15 million will now vacation at home. This will in a way help the rupee because it means there will be less selling of rupee for foreign currency. While there has been a fall in outbound tourism, the number of foreign tourists arriving in India between January and June rose 2.6 percent over the same period last year, according to figures from the Ministry of Tourism. This figure is expected to rise over the holiday season starting November this year.


Popular tourist destinations such as Goa, Agra, Jaipur and Pune are expected to benefit from the increase in domestic and foreign tourists. Incidentally, these places were the only hotel markets to report growth in revenue per available room, a measure of profitability, in the year ended 31st March, a report by hotel consultant HVS says.


Another sector, which is gaining from the rupee's fall, is medical tourism. With the rupee's steep fall, it has become more affordable for patients from abroad to undergo surgeries and other medical treatments in India. Estimates suggest that India saw an inflow of about one million foreign patients last year and according to experts this number will only go up this year, considering that it has now become cheaper to be treated in India.


The momentum is already visible. In Chennai, a popular medical tourism destination of India, private hospitals have reported a 10 percent to 15 percent increase in medical tourism in the last one year. Nursing homes in Chennai have also seen a 10 percent to 15 percent rise in medical tourism in the last one year.


In an interview to the website, Live Chennai, Apollo Hospitals CEO B Prem Kumar said the hospital has seen an increase in patients from the Middle East region, especially after the holy month of Ramzan. Last year, the hospital had more than 65,000 international patients from Middle East, Africa and SAARC countries. SAARC (South Asian Association for Regional Cooperation) is a group of eight South Asian nations, including India and Pakistan.


Recent trends in the industry suggest that a lot of people from the US are coming to India for treatment because of the low costs involved and also because of the familiarity factor of Indian doctors, many of whom are trained in the US. Another reason for the increase in foreign patients from the US is the US Affordable Care Act, popularly known as Obamacare, after which US insurance companies started encouraging medical tourism to save on insurance money.


Till about two years back, only 85,000 patients went out of the US for medical treatment, and a very small percentage of this came to India. Experts, however, expect this figure to go up to 2 million in the coming years and the country has already started seeing many medical tourists coming from the US.


The rupee's fall is, therefore, not bad news for the entire Indian economy. While the fall has had a negative impact on many sectors, for some industries such as tourism, it has come as a saviour.


Source: Nirmal Bang's Beyond Market


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