While most of the global travel and tourism industry was focused on the Nov. 8 presidential election in the United States, the trade in India was thrown in to a state of havoc that has created a major swamp for tourism—mostly for inbound, but for outbound as well—because of the demonetization decree issued that day. The key part of the directive affects the two most common denominations of currency: the 500 rupee (about $7.40) and the 1,000 rupee (about $14.80) notes, which comprised an estimated 86 percent of cash in circulation at the time. You should realize that India is a country in which about 90 percent of transactions happen in cash. (The major reasons for this is a distrust of credit cards and a fear of hacking. Only slightly more than half of all Indians even have a bank account.)
The Indian government took the drastic action, with the country’s Ministry of Finance charging that the that the 500 and 1,000 rupee notes (or “black” money) are being used to finance terrorism, fund illegal drug sales, fuel the black market, drive counterfeiting, and pay bribes. The black money had allegedly built up to such proportions that Prime Minister Narendra Modi that he would take it upon himself to cleanse India’s currency supply in one 50-day period.
This meant that $224 billion worth of currency was essentially recalled and newly designed 500 and 2,000 rupee notes were to be printed and distributed to replace it. The people of India were given until the end of December to turn in the old notes for the new ones or deposit their cash into bank accounts. Another part of the demonetization measure restricts foreigners to exchange currency to a limit of 5,000 rupees ($74) a week.
Business Insider India filed this report: “‘Foreigners are restricted to exchanging currency up to only Rs 5,000 per week. They want to spend, but Rs 5000 is way too little for them. So, they are either postponing their trips or are cancelling them. There has been at least a 25-35 percent decline in both outbound and inbound travel,’ said Subhash Goyal, former president of the Indian Association of Tour Operators (IATO).”
Also, Manoj Samuel, executive director at Riya Travels, one of India’s largest brick-and-mortar travel agents, echoed similar worries. “Cash component of our business has definitely declined to a large extent,” he said, adding that short-term sentiment will dent overall bookings.
Added Rajji Rai, ex-president, Travel Agents Association of India, “December is an important month for travel as this is the holiday season, especially in the north, but November has taken a 20% hit even as we slip into December.”
According to The Hindu’s “Business Line” section, Lokesh Bettaiah, honorary secretary general of the Travel Agents Association of India, said, “There was no major business activity happening for us in November as both inbound and outbound tourism had dropped by 20 per cent. Foreigners are already giving feedback back home about the chaos at ATMs to collect cash and this is not expected to generate future bookings unless the cash flow improves.”
In the meantime, with predictions of a woeful first quarter in 2017 for the tour and travel industry, there have been massive queues at banks and foreign exchange offices throughout India as residents and travelers to the country try to exchange their old rupee notes.
The demonetization has been met with a mostly negative reaction on the part of the business and travel trade news media.
In a harshly skeptical article, Forbes put it this way: “Part of the exchange process for old notes consisted of a proverbial dragnet to catch black money by formally scrutinizing large transactions and then doling out the appropriate taxes or fines. India banked on the black market simply not showing up for fear of being caught, and just sit idle as their illicit gluts of cash unceremoniously expired into worthless pieces of paper.”
“Theoretically, by having a large amount of canceled banknotes going unredeemed the Indian government could essentially pocket the balance, which was estimated to be as high as 21 percent of the currency being recalled— or roughly $45 billion.
“Unfortunately for Modi and India’s central bank, this payday never materialized. As of now, over 82.5 percent of the recalled notes have been turned in, and it is estimated that by the time the redemption period is over on December 30th essentially all nullified notes will have been collected — white and black alike.”
None of this is likely to affect the liquidity of tour operators who sell USA product in India, although the havoc that began on Nov. 8 and is continuing this month is sure to have an impact on SATTE (South Asia Travel and Tourism Exchange), India’s major travel trade show, which takes place Feb. 15-17 in New Delhi. The Inbound Report will be following the action in New Delhi and follow up with an account on the event.