India's Tourism: GST Cut Demand Ignores Real Competitiveness Hurdles

The push to lower GST on premium hotel rooms from 18% to 9% points to a key reason India struggles to attract international tourists: it's seen as too expensive. While a tax cut could offer some relief, it doesn't solve the deeper structural problems holding back India's global tourism competitiveness and its ability to draw high-spending visitors. The industry grapples with pricing, market positioning, and operational challenges, made tougher by a large number of new hotels set to open.

The Pricing Paradox: GST, Perceptions, and Potential

The demand to cut GST on hotel stays over ₹7,500 from 18% to 9% stems from the belief that taxes make India's accommodation too costly for foreign tourists. This is compared to destinations like Thailand and Vietnam, which are seen as offering better value. India's international tourist arrivals reached nearly 10 million in 2024, still short of the 11 million peak in 2019. The EY India and FICCI report claims this higher tax rate, especially on luxury rooms, hurts overall price competitiveness for international visitors. While the government did lower GST to 5% on rooms up to ₹7,500 in September 2025, this mainly affects domestic and mid-range travelers and doesn't address the luxury segment's concerns. Tour operators and industry experts confirm that similar hotels in Southeast Asia often provide more services for less money, reinforcing India's costly image.

The Structural Deficit: Beyond the Tax Rate

But the tax rate is just one part of India's wider tourism competitiveness problem. The EY-FICCI report itself points out major structural issues: disjointed state branding efforts, limited global marketing, a lack of well-packaged travel experiences, and ongoing difficulties with visas and transport links. India's ranking on the Travel & Tourism Development Index has dropped, showing systemic weaknesses that offset any price benefits. Despite its rich natural beauty and culture, India struggles to turn these into an edge. Countries like Thailand, which attracted over 35 million tourists and higher revenues in 2024, have a stronger global appeal. India's emerging 'experience-led' tourism sectors need better infrastructure and marketing to compete. Even the growing live entertainment sector, valued at over ₹20,800 crore in 2024, is held back by poor infrastructure, reflecting broader problems.

Oversupply Risks: New Hotels Could Hurt Returns

A significant, often overlooked, risk is the booming construction of new hotels. India's hospitality market has plans for over 60,000 to 144,000 new rooms. While this shows investor confidence, especially due to strong domestic demand and a trend towards luxury, it could lead to oversupply if international visitor numbers don't grow equally. Rising prices in the luxury hotel segment might also deter budget-conscious international travelers. If high-spending foreign tourists don't increase, this rapid building could reduce revenue per room and investor profits, turning a growth opportunity into one of reduced value. Focusing too much on luxury could alienate more price-sensitive global travelers if better value options aren't also available.

Future Outlook: A Holistic Approach Needed

Globally, international tourism is expected to grow by 3-4% in 2026, according to UN Tourism forecasts. However, rising costs and global uncertainties could push travelers towards destinations that are closer and more stable. India's tourism sector needs to use its developing 'experience-led' offerings and changing traveler habits, like the rise of solo trips, to gain a bigger market share. The strategy must go beyond just tax changes to a complete plan that boosts the country's appeal, simplifies travel for visitors, and offers valuable experiences. If these core structural issues aren't fixed, India could miss out on its significant tourism potential, even with current policy talks.