Tourism growth in India and its link with gross domestic product and foreign direct investment

Purpose: The role of tourism industry for accelerating the growth of a nation is discussed here. One of the objectives of this study is to observe the trend of year wise domestic tourist visits into different states and union territories (UTs) of India during 1991 - 2021. The other important objective is to analyse the simultaneous relationship across FDI, GDP as an indicator of economic growth and foreign exchange earnings from tourism (FET) in respect of Indian economy. Focus is also put on determining pair-wise causal relationship among the aforesaid variables. Methodology: Three year moving average method is used to observe trend of year wise domestic tourist visits into different states and Union Territories (UTs) of India during 1991-2021. Augmented Dickey Fuller (ADF) test and Phillips – Peron (PP) test for unit root is used here. Vector Auto Regressive (VAR) model is used here to see the simultaneous relationship among these three variables. Finally pair-wise Granger Causality test is used to examine the direction of causality among them. Results / Conclusion: Using three yearly moving averages, we got a smooth upward rising curve till 2019. This study also shows the unidirectional relation of FDI on GDP and GDP on FET. By analysing the result of this study we see that there is no influence of FDI on FET. We can say that if FDI and FET have positive influence on each other then it becomes beneficial for economic growth. There is needed inflow of FDI in tourism sector, in constructing roads for better transport, infrastructure, hotels, renovation and construction of tourism site etc. We also see that FDI has influential effect on GDP but not the other way round. So Govt. may encourage FDI inflow in tourism sector which might enhance FET and contribute to GDP growth. Hence favourable policies should be recommended and implemented that will encourage inflow of FDI in tourism sector which will prove beneficial for engendering GDP. Apart from this, further research is needed for analysing the impact of FDI on FET, effect of FET on GDP and influence of GDP on FDI.