Importance of the Hospitality Industry in the Economy

In 2024, the travel and tourism sector contributed 9.1% of India’s GDP. This means that the sector added $11.10 trillion to the economy, an increase of 12.1% compared to the previous year.

In 2023, the direct contribution of the tourism and hospitality industry to India's GDP was over $231 billion. This was forecasted to be 523 billion U.S. dollars by 2034.

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

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 39.5 million tourism jobs were created in India alone in 2024 and the number will increase to 42.3 million in 2025.

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.

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.

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 2023, foreign exchange earnings from the tourism industry across India amounted to nearly 28 billion U.S. dollars . It was $21.360 billion in 2022.

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.

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, being labor-intensive and involving direct interaction with travelers, creates employment opportunities for potential employees worldwide.

These opportunities span across sectors including food and beverage, travel agencies, and hotel management, generating both direct and indirect jobs.

In fact, the Indian hospitality industry alone boasts a valuation of $35 billion. This impressive growth is driven by a few key factors -

• Changing traveler preferences
• Rise of experiential travel
• Increasing growth of domestic and international travel

Following the pandemic, the travel and tourism sector has experienced remarkable recovery, resulting in more than 14 million new jobs in 2025 besides increased international travel spending.

Such glorifying statistics further highlight the importance of this industry in the global economy.