Importance of the Hospitality Industry in the Economy

The hospitality industry has contributed to the global economy through job creation and cultural and foreign currency exchanges. It reinforces a country’s economic position on the global podium as well as helps it preserve its rich art, culture, and craft.   

Adding to the national economic development, the hospitality industry is one of the most important industries in a country and globally. It does not only quench a traveler’s thirst for adventure, exploration, and leisure but also their curiosity about culture and art.

The economic impact of hospitality and tourism is massive. With countries using it as a strong soft power tool, let’s look at how this sector contributes to the nation’s economy in this blog.

How hospitality industry contribute- to the economy of a country?

Back in 2020, it was estimated that the hospitality industry accounted for 10.4% of the global GDP, and the percentage is predicted to increase by 10% in the next 10 years.   

In 2018, the direct contribution of the tourism and hospitality industry to India's GDP was over $98 billion. This was forecasted to be 194 billion U.S. dollars by 2028. 

Direct contribution of tourism and hospitality to GDP in India from 2012 to 2017, with an estimate until 2028(in billion U.S. dollars) 

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Thus, it is an important sector for any economy around the world. Let’s discuss how the hospitality industry adds to the economic growth of a nation:  

1. Employment rate boost

The hospitality industry contributes majorly to the economy of a country by employing its human resources. It generates new employment, contributing to the GDP or gross domestic product of a country. 

Around 320 million people were employed in the Travel and Tourism sector in 2023 globally. The hospitality industry in the US employed 16.5 million people alone in 2023, and 39 million tourism jobs were created in India alone in 2020, accounting for 8% of the total workforce.

Job opportunities created by travel and tourism companies and hotels, restaurants, and cafes, have made the hospitality sector one of the most economically contributing industries across the globe. The jobs created include both skilled and semi-skilled jobs.

The hospitality sector is a major source of employment worldwide. It provides jobs across various skill levels, from entry-level positions to highly skilled roles such as chefs, managers, and event planners. This industry often employs a diverse workforce, including people with different educational backgrounds and skill sets.

2. Support to local businesses

Due to the existence of a thriving hospitality industry, tourists come from different countries to explore the geography and culture of a particular region or country. This helps local businesses to witness a surge in demand and sales. Tourists shop, eat, commute, and party locally, adding to the incomes of the local shops and businesses.   

This is not a direct contribution, but rather an indirect economic impact of the hospitality industry on an economy.

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3. Revenue generation

The hospitality industry allows national governments to generate revenue through various taxes such as company tax, registration fees, etc.   

Different sectors or businesses in the hospitality industry generate revenue to pay such taxes through multiple services offered and taxes levied such as accommodations, food and beverage services, conferences, events, monthly/quarterly subscriptions, value-added tax (VAT), etc.

4. Local art and culture preservation

The hospitality industry, the tourism sector in particular, helps local, and national governments to preserve the country’s rich art, history, craft, and cultural differentiators. These national treasures highlight a country on the global map and attract tourists from even faraway places; contributing to national GDP.      

Whenever local or international tourists visit any cultural or heritage site, they are made aware of its history and significance in national affairs by tour guides, a job created by the hospitality industry.  

This not only helps the countries highlight the need for its preservation for future generations but also helps establish lesser-known and explored sites, galleries, museums, and exhibitions and attract a wider audience.  

A 2007 Research Gate paper on German cultural heritage discovered and stated the increase in the number of tourists was due to cultural tourism in the country. This increased footfall further made the cultural sites a topic of global talk and exploration and reiterated the importance of their preservation.   

Moreover, tourists are particularly attracted to the local handicraft products of the country. Their keen interest in indigenous products helps many local handicraft businesses and national craft, in general, to survive and thrive.

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5. Foreign exchange and direct investments

One of the most crucial economic impacts of the hospitality industry is the influx of foreign tourists, and hence, foreign currency. Some nations make it mandatory for foreign tourists to carry some amount of their currency for the entire length of their stay.  

This gives a boost in foreign reserves to the host nation. A well-established and growing hospitality industry attracts foreign tourists, encourages them to spend on their services, and hence, facilitates foreign exchanges all year long.   

In 2022, foreign exchange earnings from the tourism industry across India amounted to nearly 17 billion U.S. dollars. This was a rise of over 92% compared to 2021

Foreign exchange earnings from tourism in India from 2000 to 2022(in billion U.S. dollars).

Moreover, as per a draft Tourism Policy, the Indian government aims to drive $400 billion in foreign exchange from tourism by 2047. 

Additionally, the tourism business promotes direct foreign investments in local tourist destinations and attractions. In 2016, India witnessed a period of growth in FDI with multiple global hotel groups establishing business in the country.   

The sector was included in the top 15 sectors that brought the maximum FDI into India. The country continues to attract many global hotel chains and tourism companies due to its scenic beauty, warm hospitality, and strong work ethic.

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6. Encourages infrastructure development

A well-establishing and evolving hospitality industry could drive infrastructural development. Funds might be invested in enhancing already existing infrastructure and investing in new ones.  

Governments and private investors may fund improved transportation, communication, and recreational facilities to better the overall experience of a tourist and attract new ones.   

This infrastructural investment is a capital plus current expenditure that generates job opportunities and hence, income.

Conclusion

The hospitality industry thus is an important contributor to the economy of any country. From job creation to cultural exchanges and promotion of local industries, the hospitality industry fosters economic growth and global relations.