Demonetisation and Tourism in India: A study of how Modi government’s decision has hit tourism in India.
By Shashank Sharma
Published in Lab to Land, Vol. 9(30). An International Referred Journal; ISSN No. 0975-282X
Introduction:
On November 8, 2016, the Government of India made a shocking announcement of demonetizing the country's largest banknotes. In layman’s terms all currency notes of denomination 500 and 1,000 were officially withdrawn from circulation. This surprise announcement took everyone off-guard – as it was intended to do, and left a majority of the country's population, as well as foreign tourists, without usable cash.
The rationale behind demonetisation is to stop corruption, as many hoard cash at homes that is illegally acquired or on which they do not pay tax. While the exercise of demonetisation may probably slow down the economy initially, it is hoped it will have a positive effect in the long run, and will push India towards becoming a cashless society. It is proposed to improve the liquidity of banks, giving them more cash reserves with which to lend more money, and preventing real estate being driven up by cash transactions.
The decision came alongside government’s promise to root out corruption from the country and the action was apparently done in order to bring unaccounted wealth and fake money back into the Indian economy. It is a widely known fact that 500 rupee banknotes have been targeted for counterfeit and that cash bribes are popular among politicians and government officials, the central government hopes that its demonetisation scheme will result in the reduction of graft and corruption in the country. According to the Indian government, “The suddenness of this move is expected to bring about significant changes in the economy and not only help provide impetus to the overall development of the Nation but also clean up the system. Real estate and education will become more accessible to the common man. The terrorist and money laundering activities will suffer a major setback. The nation will continue to reap the benefits of this step for years to come.”
While a majority of the population agrees that the taken course of action will result in a better future, but at the same time they are struggling to cope with the surprise 86% ($200 billion) hit to the currency in circulation and have thus struck by major inconvenience. The demonetisation move has left millions without usable currency, thereby prompting locals and tourists alike to line up outside banks in hopes of having their money exchanged. With ATMs remaining closed and the government allowing only a fifty-day allowance for currency exchange, overwhelmingly long queues of annoyed citizens have plagued India's banks. According to some news reports around 100 have died as a result of the move.
While the country still debates on the impact of this decision that has taken the entire nation by surprise; with this paper I would like to draw your focus on how the exercise of demonetization has affected the Indian tourism industry.
Impact of Demonetisation on Foreign Tourists:
The foreign tourists in India are having a tough time navigating through the country with their now defunct notes in hand. Unlike locals, they don’t have the luxury to borrow from someone and are entirely dependent on cash to pay for their food and lodging. There is no dearth of local foreign exchange shops who are taking unfair advantage of the situation by offering ridiculous rates of about Rs 30 per dollar when the actual exchange rate is Rs 67.30 per dollar. The trouble is that many backpackers don't carry plastic money or travellers cheques as much and so are a little more dependent on cash. The demonetisation exercise has hit them quite hard.
The Reserve Bank of India permitted foreign tourists to exchange foreign currency for Indian notes up to a limit of Rs5,000 (US$73) per week. But the limit set by the government is much lower than what tourists typically ask for at the airport. While the RBI’s guideline is crystal clear for Indians and NRI’s, there is a lot of ambiguity around what the central bank meant about "foreigners being able to purchase equivalent of Rs 5,000 for withdrawn notes." Foreign citizens were left wondering if notes can be exchanged at Indian branches of foreign banks where they are customers. Another concern is the purchase equivalent option being available only at airport exchange counters, while in reality many foreigners failed to exchange their notes even at airports around the country.
According to a report in a leading national daily, Hindustan Times, some foreign tourists in India resorted to busking in the streets to raise money. They were seen performing in the popular tourist town of Puskhar in Rajasthan, looking for aid from the locals and displayed placards reading, “You can help us” and “Money problem”. "As a last resort, we took recourse to performing on the streets to get some help from locals so that we can at least reach Delhi to seek help from our embassies," said Jayden, a tourist from Australia, in an interview to the newspaper. The tourists claimed they were forced to do so after they were unable to withdraw money from their accounts due to the ATMs running out of cash. “Locals have been kind to us. So far we have collected around Rs2,600 (US$38),” a German tourist told the paper. “The situation without any Indian money at all was very difficult. People were understanding, and even in some places, they took British pounds from us in order to be able to get over this problem. But, it really is quiet a difficulty. We are entirely reliable on credit cards" said another tourist.
The tourists who are leaving India during the demonetisation period are also facing problems as they have to re-exchange their remaining rupees into their home currency. The situation is especially bad for those carrying the now obsolete Rs500 and Rs1,000 notes. Although the banks at some places have a separate queue for foreign tourists, they are still finding the exercise of withdrawing money quite cumbersome. It is also a fact that most foreign tourists were unaware of the government’s decision and more importantly its intricacies. The worst hit were those who arrived here on November 8 to attend the famous Pushkar fair and found themselves virtually penniless. In light of the situation, Australian government has issued a travel advisory warning its citizens about the recent demonetisation move in India.
Demonetisation and Medical Tourism in India:
Medical tourism is a significant contributor to India’s overall international tourism arrivals. The Indian medical tourism industry has been growing every year and is expected to more than double from $3 billion last year to $8 billion by 2020. A study by CII-Grant Thornton reveals that India has the second largest accredited facilities after Thailand and cost is a major driver here. Amongst the tourists who come to India to benefit from the country’s superior medical facilities, a majority of them are citizens of South Asian, Middle Eastern, and African countries. Bangladesh and Afghanistan dominate the inflows at a value index of 34 percent and there lies a lot of opportunity from the Gulf, African, and CIS states. In 2015, India became the top destination for Russians seeking medical treatments.
But the currency ban has hit medical tourism hard as neither the hospitals nor the government is coming to the rescue of patients who have been caught in the midst of a national crisis. To benefit stranded foreign tourists, banks were advised by the government to exchange up to Rs 5,000 of the old currency per person upon showing their passports. This relaxation may not be of great help to foreign nationals here for medical reasons as the hospital charges are anything between Rs 1.5 - Rs 5 lakh per patient depending on the surgery to be performed. According to the doctors at these hospitals, it’s not only foreign patients who have been affected by demonetisation, Indian patients too are suffering the same fate. “For urgent surgery requirements, we are issuing letters to bank managers to transfer Rs 50,000 directly to the hospital’s account from the patients’ accounts to take care of medical emergencies,’’ said a doctor from Bengaluru in an interview to a news agency. Earlier, these super speciality hospitals were willingly accepting cash in Indian currency from foreign nationals. But their preferred option has now become a liability for these patients who made heavy expenditure to come here from far off lands.
According to the Medical Tourism Market Report 2015, India has one of the lowest costs and highest quality among all medical tourism destinations. It offers a wide variety of procedures at about one-tenth the cost of similar procedures in the US. India is also a preferred destination for those on the waiting list of UK’s famed NHS (National Health Service) since there is a huge waiting list in their own country. In 2012, 1.71 lakh foreign patients travelled to India. In 2013, the number went up to 2.36 lakh and in 2014, 1.84 lakh patients travelled to India. The number fell as a result of global recession but is projected to increase in the coming years. Indian hospitals are also preferred due to continued treatments post surgery and also for the advanced telemedicine facilities they offer.
Impact of Demonetisation on Specific Tourism Sectors: Case of Rajasthan and Himachal
Rajasthan has long been a favourite amongst foreigners visiting India but the current currency crisis has hit Rajasthan’s tourism industry hard as it has coincided with the peak tourist season in the state. The industry stakeholders are bracing for poor business this time and say hotels, restaurants, taxi operators and vendors have all taken a hit following the demonetisation move. The flow of tourists coming under organised packages and groups, however, has not been affected, but many of those who do not plan their stay in advance have cancelled their trips. While hotel room bookings in the state have seen some cancellations following demonetisation, the number of individual travellers have declined by 30 to 40 per cent. An American tourist visiting Jaisalmer, said in an interview to PTI that they were facing difficulties in getting currency exchanged. “Changing money has been very difficult for us but we feel very sorry for the long lines of people we see outside the banks. It was especially sad in the small towns we drove through.” The peak tourist season in the desert state begins in October and continues till March, during which lakhs of domestic and foreign tourists visit places in Jaipur, Jaisalmer, Jodhpur and Udaipur among others.
The Centre’s demonetisation of high-value currency has come as a blow for the estimated Rs 5,000 crore tourism industry of Himachal Pradesh, especially during winter season. With hotels having a low occupancy of 15% to 20%, those associated with the tourism industry are worried about their business as cash crunch is not allowing people to visit hill stations of the state. Earlier, honeymoon couples used to head for winter resorts in the state, but they are missing this time. Himachal Pradesh has around 2,400 registered hotels and guest houses with a bed capacity of around 62,000. It also has 630 restaurants and 500 registered home-stays. After summer season, year-end celebrations of Christmas and New Year, besides snowfall, attract hordes of tourists.
Conclusion
The most problematic period of demonetisation sits squarely in the busiest season for the Indian tourism industry. A slump was registered in the hotels and associated services bookings in the first week after the note ban. The premium hotel segment, however, has not seen much impact as bookings are mostly done in advance and online. The hit has mostly been restricted to the unorganized sector. Hotel and travel bookings succeeded in making a slow comeback since the scheme has been announced. Offshore travel has also been negatively impacted as foreign exchange usage abroad is mostly done in cash.
A significant impact has also been observed in the aviation sector. Some airlines have seen bookings go down by about 16% in the week following demonetisation compared to the one previous to that. Discretionary travel has been the worst hit. Poor sales have forced most airlines to bring forward their airfare sales which are normally reserved for the low season starting January. International traffic to West Asia and South East Asia, especially by traders and low wage workers, has been affected. Business jet operators say several charter flights have to be cancelled as payments are often made in cash. As the fuel prices have been low, airlines have been able to fill seats by offering cheaper fares but the real impact of demonetization will be observed in December, January and February when the final revenue and traffic numbers are released.
References
1. Live Mint. [e-paper]. (2016, December 8). How demonetisation has impacted key sectors.
Retrieved from http://www.livemint.com/Politics/a0Fk7NwHWsKcxiu4A3i4tK/How-demonetisation-has-impacted-key-sectors.html
2. Lulla, Anil Budur. Your Story. (2016, November 28). The demonetisation effect: medical tourism takes a big hit. Retrieved from https://yourstory.com/2016/11/demonetisation-medical-tourism/
3. Business Line. [e-paper]. (2016, November 22). Demonetisation hits Rajasthan tourism.
Retrieved from www.thehindubusinessline.com/news/variety/demonetisation-hits-rajasthan-tourism/article9374748.ece
4. Hussain, Zakir. Hindustan Times. [e-paper]. (2016, November 2016) Demonetisation: „Penniless‟ foreigners resort to street performances for cash. Retrieved from http://www.hindustantimes.com/india-news/demonetisation-penniless-foreigners-resort-to-street-performances-for-cash/story-Dc7q3gHW0mrJeoqwZ3By7N.html
5. Rattanpal, Divyani. The Quint. (2016, November 11). Cashless & Stranded: Demonetisation Hits Foreign Tourists Hard.
Retrieved from https://www.thequint.com/videos/2016/11/11/demonetisation-rs-500-rs-1000-rs-2000-rupee-foreign-tourists-new-currency
6. Times of India. [e-paper]. (2016, December 6). Demonetisation hits tourism in HP
Retrieved from http://timesofindia.indiatimes.com/city/shimla/Demonetisation-hits-tourism-in-HP/articleshow/55823132.cms
On November 8, 2016, the Government of India made a shocking announcement of demonetizing the country's largest banknotes. In layman’s terms all currency notes of denomination 500 and 1,000 were officially withdrawn from circulation. This surprise announcement took everyone off-guard – as it was intended to do, and left a majority of the country's population, as well as foreign tourists, without usable cash.
The rationale behind demonetisation is to stop corruption, as many hoard cash at homes that is illegally acquired or on which they do not pay tax. While the exercise of demonetisation may probably slow down the economy initially, it is hoped it will have a positive effect in the long run, and will push India towards becoming a cashless society. It is proposed to improve the liquidity of banks, giving them more cash reserves with which to lend more money, and preventing real estate being driven up by cash transactions.
The decision came alongside government’s promise to root out corruption from the country and the action was apparently done in order to bring unaccounted wealth and fake money back into the Indian economy. It is a widely known fact that 500 rupee banknotes have been targeted for counterfeit and that cash bribes are popular among politicians and government officials, the central government hopes that its demonetisation scheme will result in the reduction of graft and corruption in the country. According to the Indian government, “The suddenness of this move is expected to bring about significant changes in the economy and not only help provide impetus to the overall development of the Nation but also clean up the system. Real estate and education will become more accessible to the common man. The terrorist and money laundering activities will suffer a major setback. The nation will continue to reap the benefits of this step for years to come.”
While a majority of the population agrees that the taken course of action will result in a better future, but at the same time they are struggling to cope with the surprise 86% ($200 billion) hit to the currency in circulation and have thus struck by major inconvenience. The demonetisation move has left millions without usable currency, thereby prompting locals and tourists alike to line up outside banks in hopes of having their money exchanged. With ATMs remaining closed and the government allowing only a fifty-day allowance for currency exchange, overwhelmingly long queues of annoyed citizens have plagued India's banks. According to some news reports around 100 have died as a result of the move.
While the country still debates on the impact of this decision that has taken the entire nation by surprise; with this paper I would like to draw your focus on how the exercise of demonetization has affected the Indian tourism industry.
Impact of Demonetisation on Foreign Tourists:
The foreign tourists in India are having a tough time navigating through the country with their now defunct notes in hand. Unlike locals, they don’t have the luxury to borrow from someone and are entirely dependent on cash to pay for their food and lodging. There is no dearth of local foreign exchange shops who are taking unfair advantage of the situation by offering ridiculous rates of about Rs 30 per dollar when the actual exchange rate is Rs 67.30 per dollar. The trouble is that many backpackers don't carry plastic money or travellers cheques as much and so are a little more dependent on cash. The demonetisation exercise has hit them quite hard.
The Reserve Bank of India permitted foreign tourists to exchange foreign currency for Indian notes up to a limit of Rs5,000 (US$73) per week. But the limit set by the government is much lower than what tourists typically ask for at the airport. While the RBI’s guideline is crystal clear for Indians and NRI’s, there is a lot of ambiguity around what the central bank meant about "foreigners being able to purchase equivalent of Rs 5,000 for withdrawn notes." Foreign citizens were left wondering if notes can be exchanged at Indian branches of foreign banks where they are customers. Another concern is the purchase equivalent option being available only at airport exchange counters, while in reality many foreigners failed to exchange their notes even at airports around the country.
According to a report in a leading national daily, Hindustan Times, some foreign tourists in India resorted to busking in the streets to raise money. They were seen performing in the popular tourist town of Puskhar in Rajasthan, looking for aid from the locals and displayed placards reading, “You can help us” and “Money problem”. "As a last resort, we took recourse to performing on the streets to get some help from locals so that we can at least reach Delhi to seek help from our embassies," said Jayden, a tourist from Australia, in an interview to the newspaper. The tourists claimed they were forced to do so after they were unable to withdraw money from their accounts due to the ATMs running out of cash. “Locals have been kind to us. So far we have collected around Rs2,600 (US$38),” a German tourist told the paper. “The situation without any Indian money at all was very difficult. People were understanding, and even in some places, they took British pounds from us in order to be able to get over this problem. But, it really is quiet a difficulty. We are entirely reliable on credit cards" said another tourist.
The tourists who are leaving India during the demonetisation period are also facing problems as they have to re-exchange their remaining rupees into their home currency. The situation is especially bad for those carrying the now obsolete Rs500 and Rs1,000 notes. Although the banks at some places have a separate queue for foreign tourists, they are still finding the exercise of withdrawing money quite cumbersome. It is also a fact that most foreign tourists were unaware of the government’s decision and more importantly its intricacies. The worst hit were those who arrived here on November 8 to attend the famous Pushkar fair and found themselves virtually penniless. In light of the situation, Australian government has issued a travel advisory warning its citizens about the recent demonetisation move in India.
Demonetisation and Medical Tourism in India:
Medical tourism is a significant contributor to India’s overall international tourism arrivals. The Indian medical tourism industry has been growing every year and is expected to more than double from $3 billion last year to $8 billion by 2020. A study by CII-Grant Thornton reveals that India has the second largest accredited facilities after Thailand and cost is a major driver here. Amongst the tourists who come to India to benefit from the country’s superior medical facilities, a majority of them are citizens of South Asian, Middle Eastern, and African countries. Bangladesh and Afghanistan dominate the inflows at a value index of 34 percent and there lies a lot of opportunity from the Gulf, African, and CIS states. In 2015, India became the top destination for Russians seeking medical treatments.
But the currency ban has hit medical tourism hard as neither the hospitals nor the government is coming to the rescue of patients who have been caught in the midst of a national crisis. To benefit stranded foreign tourists, banks were advised by the government to exchange up to Rs 5,000 of the old currency per person upon showing their passports. This relaxation may not be of great help to foreign nationals here for medical reasons as the hospital charges are anything between Rs 1.5 - Rs 5 lakh per patient depending on the surgery to be performed. According to the doctors at these hospitals, it’s not only foreign patients who have been affected by demonetisation, Indian patients too are suffering the same fate. “For urgent surgery requirements, we are issuing letters to bank managers to transfer Rs 50,000 directly to the hospital’s account from the patients’ accounts to take care of medical emergencies,’’ said a doctor from Bengaluru in an interview to a news agency. Earlier, these super speciality hospitals were willingly accepting cash in Indian currency from foreign nationals. But their preferred option has now become a liability for these patients who made heavy expenditure to come here from far off lands.
According to the Medical Tourism Market Report 2015, India has one of the lowest costs and highest quality among all medical tourism destinations. It offers a wide variety of procedures at about one-tenth the cost of similar procedures in the US. India is also a preferred destination for those on the waiting list of UK’s famed NHS (National Health Service) since there is a huge waiting list in their own country. In 2012, 1.71 lakh foreign patients travelled to India. In 2013, the number went up to 2.36 lakh and in 2014, 1.84 lakh patients travelled to India. The number fell as a result of global recession but is projected to increase in the coming years. Indian hospitals are also preferred due to continued treatments post surgery and also for the advanced telemedicine facilities they offer.
Impact of Demonetisation on Specific Tourism Sectors: Case of Rajasthan and Himachal
Rajasthan has long been a favourite amongst foreigners visiting India but the current currency crisis has hit Rajasthan’s tourism industry hard as it has coincided with the peak tourist season in the state. The industry stakeholders are bracing for poor business this time and say hotels, restaurants, taxi operators and vendors have all taken a hit following the demonetisation move. The flow of tourists coming under organised packages and groups, however, has not been affected, but many of those who do not plan their stay in advance have cancelled their trips. While hotel room bookings in the state have seen some cancellations following demonetisation, the number of individual travellers have declined by 30 to 40 per cent. An American tourist visiting Jaisalmer, said in an interview to PTI that they were facing difficulties in getting currency exchanged. “Changing money has been very difficult for us but we feel very sorry for the long lines of people we see outside the banks. It was especially sad in the small towns we drove through.” The peak tourist season in the desert state begins in October and continues till March, during which lakhs of domestic and foreign tourists visit places in Jaipur, Jaisalmer, Jodhpur and Udaipur among others.
The Centre’s demonetisation of high-value currency has come as a blow for the estimated Rs 5,000 crore tourism industry of Himachal Pradesh, especially during winter season. With hotels having a low occupancy of 15% to 20%, those associated with the tourism industry are worried about their business as cash crunch is not allowing people to visit hill stations of the state. Earlier, honeymoon couples used to head for winter resorts in the state, but they are missing this time. Himachal Pradesh has around 2,400 registered hotels and guest houses with a bed capacity of around 62,000. It also has 630 restaurants and 500 registered home-stays. After summer season, year-end celebrations of Christmas and New Year, besides snowfall, attract hordes of tourists.
Conclusion
The most problematic period of demonetisation sits squarely in the busiest season for the Indian tourism industry. A slump was registered in the hotels and associated services bookings in the first week after the note ban. The premium hotel segment, however, has not seen much impact as bookings are mostly done in advance and online. The hit has mostly been restricted to the unorganized sector. Hotel and travel bookings succeeded in making a slow comeback since the scheme has been announced. Offshore travel has also been negatively impacted as foreign exchange usage abroad is mostly done in cash.
A significant impact has also been observed in the aviation sector. Some airlines have seen bookings go down by about 16% in the week following demonetisation compared to the one previous to that. Discretionary travel has been the worst hit. Poor sales have forced most airlines to bring forward their airfare sales which are normally reserved for the low season starting January. International traffic to West Asia and South East Asia, especially by traders and low wage workers, has been affected. Business jet operators say several charter flights have to be cancelled as payments are often made in cash. As the fuel prices have been low, airlines have been able to fill seats by offering cheaper fares but the real impact of demonetization will be observed in December, January and February when the final revenue and traffic numbers are released.
References
1. Live Mint. [e-paper]. (2016, December 8). How demonetisation has impacted key sectors.
Retrieved from http://www.livemint.com/Politics/a0Fk7NwHWsKcxiu4A3i4tK/How-demonetisation-has-impacted-key-sectors.html
2. Lulla, Anil Budur. Your Story. (2016, November 28). The demonetisation effect: medical tourism takes a big hit. Retrieved from https://yourstory.com/2016/11/demonetisation-medical-tourism/
3. Business Line. [e-paper]. (2016, November 22). Demonetisation hits Rajasthan tourism.
Retrieved from www.thehindubusinessline.com/news/variety/demonetisation-hits-rajasthan-tourism/article9374748.ece
4. Hussain, Zakir. Hindustan Times. [e-paper]. (2016, November 2016) Demonetisation: „Penniless‟ foreigners resort to street performances for cash. Retrieved from http://www.hindustantimes.com/india-news/demonetisation-penniless-foreigners-resort-to-street-performances-for-cash/story-Dc7q3gHW0mrJeoqwZ3By7N.html
5. Rattanpal, Divyani. The Quint. (2016, November 11). Cashless & Stranded: Demonetisation Hits Foreign Tourists Hard.
Retrieved from https://www.thequint.com/videos/2016/11/11/demonetisation-rs-500-rs-1000-rs-2000-rupee-foreign-tourists-new-currency
6. Times of India. [e-paper]. (2016, December 6). Demonetisation hits tourism in HP
Retrieved from http://timesofindia.indiatimes.com/city/shimla/Demonetisation-hits-tourism-in-HP/articleshow/55823132.cms