Ease of Doing Business for the Tourism Sector

NATIONAL TOURISM CONCLAVE. PUNJAB

Albert Sole

Senior Private Sector Specialist

World Bank Group

Chandigarh, 12 October, 2017

WHY SUSTAINABLE TOURISM MATTERS

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Globally, travel & tourism employs 50% women and 50% youthEvery $1 spent on tourism generates $3.2 in GDP across the economy

Strong link to the twin goals and sustainability

A source of preservation of cultural and environmental assets for future generations

INTEGRATED SUSTAINABLE TOURISM SOLUTIONS

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Building

Communities Enhancing

livelihoods

Promoting

entrepreneurship

Skills development

Mobilizing

Investments Identifying & financing

investments

Designing and

implementing PPPs

Commercializing key

assets

Valorizing Cultural

Heritage and

Protecting the

Environment CH and environmental

assets conservation

CH neighborhoods

rehabilitation

Coastal zone sust

management

Improving

Infrastructure Access to basic

services

Transport and

mobility

Urban upgrading

Business facilities &

leisure

infrastructure

Strengthening

Markets

Improving market

offering

Removing regulatory

constraints

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ONE OF THE SEVEN WONDERS OF THE WORLD…

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SURROUNDED BY SLUMS AND A POLLUTED SACRED RIVER

OPPORTUNITY• Unrivaled potential - 5,000 years of history, 200 million craftspeople, 30+

UNESCO World Heritage Sites

• Protection of emblematic natural and cultural assets

• India gets 1/7 of the number of tourists in Paris

• Huge unmet domestic and international market demand and associated need for private investment

• Potential to create 1000’s of hotel rooms, SME suppliers and 100,000s jobs, driven largely by domestic travel

• Improved local living conditions and livelihoods; bringing people out of poverty; strengthened sense of dignity and pride

• US$ billions in locally earned tourist expenditures

• Improved government services delivery

BINDING CONSTRAINTS• Many communities completely disconnected from tourism income

streams

• Infrastructure gaps

• Poorly targeted private sector investment

• Skills gaps

• Product quality deficiencies

• Lack of institutional capacity

• Poor image

• Complex bureaucracy stifling investment

INTEGRATED TOURISM SOLUTION - INDIA

The WBG is delivering a comprehensive program, anchored in the Country Partnership Framework, that

draws together states and localities in a series of related interventions.

WB investment under preparation for asset development, productive livelihoods, urban regeneration of historic

communities, valorization of intangible cultural assets, and environmental enhancement

WB/IFC Knowledge Services to develop the Buddhist Circuit & Public Private Dialogue platforms to link & mobilize

stakeholders at the destination level

IFC investments & PPPs engaging international and local investors in hotels and tourism-related assets and

infrastructure

INTEGRATED TOURISM SOLUTION - INDIA

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PUNJAB: BUSINESS REFORM ACTION PLAN BY DIPP

State Assessment, 2015 (36.73% - implementation score) State Assessment, 2016 (91.07% - implementation score)

Punjab ranked 12th in 2016, compared to 16th in 2017. It improved its rank this year through strengthening its single window system (100%) and building strong labour and

environmental registration systems (100%). It also achieved implementation scores above 90% on access to information (92.31%), commercial tax registration (97.96%), and inspections reforms (97.67%).

0%

25%

50%

75%

100%

Access to Info. &Trans.

Single Window

Land and Property

Construction Permit

EnvironmentalRegistration

Labour Registration

Obtaining UtilityConnections

Tax Registration &compliances

Carrying outinspections

Enforcing contracts

Punjab Leaders National Average

Snapshot of performance

EXAMPLE: THE BUDDHIST CIRCUIT INVESTMENT POLICY AND REGULATORY ASSESSMENT

• Legal/regulatory/policy assessment of services related investment entry restrictions Focus

• Tourism –

• (a) tour guide services, tour operator services

• (b) accommodation services for visitors

• (c) meal serving services

• (d) local transportation and sightseeing services of passengers, land transport services of passengers, scheduled road transport services, rental services of passenger cars with operators, sightseeing services by land, air transport services of passengers.

Sectors

• Site specific – (i) MP – Sanchi (ii) UP – Sarnath and KushinagarRegion

• Impediments to investment entry: discriminatory provisions, restrictions on private investment, onerous compliances/conditions for investment, burdensome procedures, no mutual recognition of licenses across States, measures not compliant with India’s GATS and international investment obligations, inconsistencies between national level and State level laws and regulations – both in terms of de jure provisions or de facto application

• Level of transparency/due process

• Effectiveness of the institutional framework for tourism investment –incentives/disincentives to foster private participation in the tourism sector, prevailing conflict of interest issues, inconsistencies in mandates, link with the overarching tourism institutional framework

• Tourist/pilgrims visa regime

Substantive Areas

Methodology• Legal review – covering de jure and de facto assessment + private sector inputs

• Report will comprise – assessment and actionable recommendations

PRIVATE SECTOR WORKSHOP: OPEN DISCUSSION WITH THE LOCAL BUSINESS BASE AND POTENTIAL INVESTORS

Format

• 3 sessions

• Each session covered a group of related sectors

• Session 1: accommodation, tour operators, and food services; Session 2: car rental, air, and land transportation services; and Session 3: Private equity and finance groups

Participants• # of participants: Approximately 24

• Small and medium sized enterprises (SMEs) and very large conglomerates

Key Questions

• Understanding the scope of current operations

• Where is the potential

• Main policy and regulatory challenges they face in entry/establishing their business at the National and State level (UP and MP)-To enter into the sector

• Entry conditionality

• Compliances

• Register business; obtaining operational licenses

• Transparency and Due Process

• Investment Institutional Framework

• Visas

• Prioritizing constraints and recommendations

SESSION 1: ACCOMMODATION, TOUR OPERATORS AND FOOD SERVICES

Visas:

• E-visas should also be made available at border posts, for those entering India by road and not only at airports.

• Multiple-entry tourist visas can be obtained, but not as e-visas, only if one applies in an Indian Embassy in person.

Process to get multiple entry visa has recently been improved – and can be further simplified.

Land:

• Obtaining change of land use certification is time consuming

• Enormous challenges related to getting permission to build on land- rules determining ground coverage, setbacks,

number of floors, etc.

• Participants presented a hypothetical timeline to illustrate these challenges- 1 year to close the deal before it is

acquired+2 years to settle terms of use+1 year to secure financing; Construction – takes another 2 years before getting an

operating license.

SESSION 1: ACCOMMODATION, TOUR OPERATORS AND FOOD SERVICES (CONTD.)

Hospitality Sector Approvals :

• Discretionary requirements imposed at the district level by the Town and Country Planning Organization –request for

addl.14 approvals incl. highway clearance, environmental clearance, airport clearance (even when the hotel in question

was over 20 km away from the airport).

• Even after securing the initial approval, they require re-approval every year. Hoteliers requested that approval should take

place once, and not annually.

• Reforms discussed:

(i) Digitizing and codifying the approval process to make it clearer and fairer

(ii) Manual that states what rules apply and provides time frames for each procedure, with the default being approval- limit

discretionary power and include ‘silent consent’

(iii) Hospitality Development and Promotion Board set up in 2011 is not yet operational

(iv) Idea of specific Buddhist Circuit Authority was discussed

SESSION 1: ACCOMMODATION, TOUR OPERATORS AND FOOD SERVICES (CONTD.)

Monastery Economy:

• No law regulating the operations of monasteries, yet up to 70% of BC visitors stay in them.

• Participants reported how monasteries are not paying taxes and not providing registration information

on visitors to the Ministry of Home Affairs

• Not integrated/linked with the local economy- import food, no local sourcing

• Monasteries do not have to abide by the land use/building regulations that the private sector has to

adhere to

• Participants reported how the GoI gives land to monasteries or foreigners (e.g. Thailand) buy large tracts of

land to develop places for nationals from their country to stay.

• The political economy of these monasteries is a complex one - possibility of any reforms to address

challenges faced by the private sector in this respect is difficult /will have to be carefully considered

SESSION 1: ACCOMMODATION, TOUR OPERATORS AND FOOD SERVICES (CONTD.)

Infrastructure:

• Lack of sanitation facilities hampers development of the BC

• Participants reported that Ministry of Tourism has a budget for the BC, but that it cannot be spent on infrastructure (roads,

toilets, etc.), yet this is what is most needed – thus the policies and regulatory measures that guide GoI budgetary

expenditures in support of the BC should be reviewed.

Special Tourism Development Zones announced – but no clarity on their location or policies yet

Tour operators:

• Need to be licensed under law but de facto operate without license. No benefit of being licensed (incentives lapsed).

• “Tour operator” not granted industry status

Tour guides – no mutual recognition

SESSION 2: CAR, RENTAL, BUS AND TRAIN TRANSPORTATION SERVICES

Bus and Car Permits:

• Improving the process of obtaining All India Permits; national permit for bus transportation was announced four years

ago, but has not yet taken effect. The plan is for different rates depending on different bus sizes.

• Lack of consistency in the approaches across states. In UP, one can pay online. But not in Bihar. Bihar is issuing

permits for up to three months, while UP is not. There are different approaches being practiced across different states,

creating inconsistency, confusion, and cost.

• Looking into practices from different Indian states regarding permit and procedural issues would be useful

Railways:

• Mahaparinirvan Express- The greatest issue may be that the GoI is dictating terms by which the private sector can

operate the train service, reacting to the pressures of vested interests (e.g. where one has to source supplies, who one has

to hire, etc.).

Air Transport:

• Limited international points of entry to the BC- Bodhgaya and Varanasi ; need smaller international airports; particularly

bw Varanasi-Bhopal

• Land acquisition for expansion and upgrading of BC airports is a policy challenge

SESSION 3: FINANCE AND OTHER CONGLOMERATES

• Participants mentioned that a hotel requires no less than 53 licenses in any state, creating a huge bureaucracy.

• Land agencies are the most profit-making actors along the BC-role not conducive to development of tourist potential;

Land Bank be developed to clearly identify and publicize land that is available for acquisition to invest in BC tourism

activities.

• Need for measures to support creating a market at the middle and higher end of the tourist spectrum.

• Investment needed in diversified cultural offerings

INDICATIVE LIST OF LEGAL/POLICY INSTRUMENTS BEING REVIEWED

1. The Constitution of India, 1950 (the Seventh Schedule)

2. The Companies Act of 2015 and the Rules.

3. The Foreign Exchange Management Act, 1999 (FEMA Regulations of 2003) and Rules.

4. The Land Acquisition, Rehabilitation and Resettlement Act, 2013

5. The Madhya Pradesh Shops and Establishments Act, 1958

6. The Madhya Pradesh Investment Region Development and Management Act, 2013.

7. The Uttar Pradesh Shops and Commercial Establishments Act, 1958

8. The Uttar Pradesh Municipal Corporation (Amendment) Act, 1998.

9. The Uttar Pradesh Special Economic Zone Development Authority Act, 2002.

10. The Motor Vehicles Act, 1988

11. The Motor Vehicles (All India Permits for tourist transport operators) Rules, 1993 (Uttar Pradesh)

12. Intellectual Property Laws

13. National Tourism Policy 2002, MP Tourism Policy 2016, UP Tourism Policy

14. Ministry of Tourism – Guidelines and Schemes for Hotels and Restaurants, Travel Agents and Tour Operators

EMERGING ISSUES ACROSS ALL BUSINESS SEGMENTS

Tourism sector under the Constitution:

• "Tourism“ regulation/policies are framed outside the context of the Constitution of India - and therefore the Government of

India is constitutionally denuded of a stronger role in developing a stable institutional framework.

• Proposal of having ‘tourism’ on the concurrent list to raise its priority level (previously proposed in the New Tourism Policy

2015 Draft – opposed by 8 States); domestic pilgrimages are currently under the State list.

Land:

• Land is a crucial component of any tourism development and most complex approvals are intertwined with land related

legal aspects; however land remains in the State List. Hence, massive delays for Project implementation at the ground

level.

Impact of GST:

• The GST Council announced that non-AC restaurants will charge 12% GST on food, AC restaurants and those with liquor

licence 18% per cent, and five star hotels will charge a GST of 28%.

THANK YOU.

Albert Sole

(Twitter: @on_clusters)

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