Unfulfilled potential: let’s attract more foreign direct spending to help keep a steady external balance

In other words, if we had attracted 40 million tourists last year, our macroeconomic position would be a lot less stressful.

It is time Indian policymakers started paying serious attention to foreign visitors as an important source of foreign currency earnings. We should classify this hard currency income as FDE rather than tourism revenue to better capture its importance, track it in greater granularity and implement policies that boost it.

You might wonder if this is merely a pedantic exercise in rebranding tourism. It’s beyond that. Unfortunately, the term ‘tourism’ to most policymakers is a synonym for sightseeing.

The tourism policies of many state governments are about identifying, cleaning up and building roads and hotels around old monuments, places of religious significance, spots of natural beauty, wildlife reserves and other similar sightseeing spots.

Some of these efforts have been extraordinary and draw visitors from around the world. Income from sightseeing contributes to tourism revenues, but tourism is a much larger business than this.

I think a big reason why India underperforms countries like Singapore, Malaysia, Thailand and the UAE in tourism is that the government conflates tourism with sightseeing, leading to a concentration of effort around specific special-purpose destinations.

To earn a lot more from foreigners, India must work on general purpose destinations. Foreigners visiting ‘non-tourist’ cities in Europe, America and East Asia spend money on a range of activities like shopping, entertainment, personal care, health and education.

Not everyone who visits New York goes there to visit the Statue of Liberty. Most people spend money on food, accommodation and transport even if they don’t splurge on shopping and concert tickets.

Many visit New York just to experience New York and America. This is not the case in India, where foreign tourists are packed off to some sight-seeing destination because Indian cities are unattractive and don’t offer a visitor much.

That’s the point: Indian cities must become more attractive to draw more foreign visitors who spend more time and more money in them. France attracts five times as many foreign tourists because people find it an attractive country to visit. It’s not the case that only rich and developed countries do well. Vietnam, the size of an average Indian state, matches India in terms of the number of foreign visitors. Malaysia beats India. China receives seven times as many foreign visitors as India.

In other words, we can address India’s balance of payments problems by making our cities liveable. The ugliness, pollution and shabbiness of our habitats is not only giving us a low quality of life, but also undermining our macroeconomic strength and geo-economic power. Ergo, making our cities liveable becomes that rare public policy objective that not only cuts across Union, state and municipal governments, but also institutions such as the Reserve Bank of India.

I have friends in Bengaluru who have devoted their lives and large amounts of wealth to improve governance and infrastructure in the city. Given the outcomes, the best they can say is that things would have been much worse had it not been for their efforts. The story is the same, more or less, in all our major cities.

No doubt, improving our cities is hard, perhaps impossibly so. Policies, schemes and missions can at best build infrastructure, but real change requires an internal transformation among citizens. As I have argued in earlier columns, until a large fraction of its people develop the consciousness of belonging to a common civic community, the city will not improve. Our cities are in bad shape because our society has a social capital deficit.

It might help if we started measuring how many foreigners visit our cities and track their spending, not because we seek their approval but because they give us an objective sense of how well we’re doing in terms of urban outcomes.

If FDE is tracked with the same seriousness as foreign direct investment and foreign portfolio investment, state governments might pay more attention to what they ought to have done for their citizens anyway. It is useful to remind New Delhi’s economic policymakers that macroeconomic problems often involve getting the most basic things right.

The author is co-founder and director of The Takshashila Institution, an independent centre for research and education in public policy.