Inside India’s $59 Billion Tourism Opportunity

This report explores the dynamic potential of India’s hospitality and tourism sector, a cornerstone of economic growth with significant untapped opportunities. In this post, we look at:

Fast GDP growth and rising incomes fuel travel.
Domestic tourism leads; foreign luxury travel rising.
Luxury hotels face big demand–supply gap.
Corporate travel, weddings, and events boost revenue.
Risks: price sensitivity, economic swings, Airbnb competition.

India’s tourism and hospitality sector holds significant potential despite challenges. With diverse landscapes, rich cultural heritage, and historical depth, it plays a key role in the economy. Let’s explore the data and trends shaping its growth:

India’s Economic Boom: Setting the Stage

According to the IMF’s World Economic Outlook April 2025, India’s GDP grew by a robust 7.4% in 2024 and is set to climb 7.1% in 2025. From a US$3.6 trillion economy in 2022–23, it’s projected to hit US$5.1 trillion by 2026–27 and a whopping US$6.8 trillion by 2030. In 2023, India contributed 16% to global growth, per the World Economic Forum, cementing its role as a global economic engine.

Per capita income is also on a tear, growing at a 5.4% CAGR from 2018 to 2024 to reach US$2,711. By 2030, it’s expected to hit US$4,469, clocking an 8.7% CAGR. Urbanization is another tailwind—40% of India’s population (about 518 million people in 2023, per the World Bank) will live in urban areas by 2036, up from 31% in 2011.

Growing affluence, increase in high and upper middle-income households, low median age of population and rise in urbanization are expected to drive higher consumption, particularly in the luxury segment. Between FY21 and FY31, India’s incremental consumption potential is pegged at US$3 trillion—2.4 times higher than FY21 levels—with a 9% CAGR, making it a US$5 trillion consumption economy by 2031. Private Final Consumption Expenditure (PFCE) rose 7.2% to INR 106 lakh crore from INR 99 lakh crore, while CPI has been dropping for nine straight months. Translation? More money in pockets, ready to be spent on experiences like travel and hospitality.

Tourism’s Contribution: Room to Grow

India’s tourism and hospitality sector, while a key GDP driver, still trails global peers—2% below the US and 4% below Thailand in contribution to GDP. But here’s the exciting part: there’s massive room to grow. The sector is expected to generate over INR 5,12,356 crore (US$59 billion) by 2028, with Foreign Tourist Arrivals (FTAs) hitting 30.5 million, per the Ministry of Tourism.

The travel market is set to soar from US$75 billion in FY20 to US$125 billion by FY27. Domestic tourism is the real MVP, with Domestic Tourist Visits (DTVs) jumping 44.98% from 1,731.01 million in 2022 to 2,509.63 million in 2023. Uttar Pradesh (478.53 million) and Tamil Nadu (286.01 million) led the pack, while Maharashtra (3.39 million) and Gujarat (2.81 million) topped foreign tourist visits. FTAs reached 18.89 million in 2023, surpassing the 2019 peak of 17.91 million by 5.47%. South Asia (29.02%), North America (21.82%), and Western Europe (20.40%) were the top sources, with leisure travel (46.2%), diaspora visits (26.9%), and business travel (10.3%) driving arrivals. Foreign Tourists Are Back, But Smarter. Inbound tourism grew 64% YoY in 2023. But here’s the kicker—foreigners are now skipping Europe for India’s luxury wellness retreats. Ayurveda resorts, palace stays, yoga spas: all booked out. India’s value for luxury is slowly getting noticed.

Domestic tourism is on fire, expected to double to 5.2 billion visits by 2030 from 2.5 billion in 2024 (13.4% CAGR). Domestic visitor spending grew from INR 12.74 trillion in 2019 to INR 14.64 trillion in 2023 and is projected to hit INR 33.95 trillion by 2034 (7.9% CAGR), per WTTC’s Economic Impact Research, 2024. Improved connectivity—air, road, and rail—plus tourism infrastructure investments are supercharging this growth. Domestic air passenger traffic is set to more than double to 693 million by FY30 from 307 million in FY24.

Aviation: Taking Flight

India’s aviation sector is soaring like a kite. It’s the third-largest domestic aviation market globally and is on track to be the third-largest overall by 2026, per IATA. From 50 operational airports in 2000, India now has 148, aiming for 220 by 2027. Scheduled flights jumped 77.7% over the past decade to 1.3 million in 2024 (6.9% YoY growth), with domestic flights rising from 613,000 in 2014 to 1.1 million in 2024. IndiGo dominates with a 53% share of departing flights.

Despite this, India accounts for just 4.2% of global aviation, signalling massive growth potential. The UDAN scheme and low-cost carriers are making air travel accessible, fueling tourism to emerging destinations.

Aircraft deliveries in India in 2024 reached 108, a new high compared to 106 new jets received in 2018 (Chart 24). According to the Economic Times, Indian airlines' order book for the next five years stands at an impressive 1120 aircrafts, adding further potential to the industry's growth. However, a series of disruptions have affected the global aircraft supply chain in recent years, resulting in a high likelihood of revision of the future delivery schedules.

Hospitality Landscape (Supply and Demand): Scarcity

India’s hospitality industry boasts 3.4 million keys as of March 31, 2024, but the organized sector (branded, aggregators, quality independents) is just 11% (375,000 keys). Branded hotels make up 45% of this (170,000 keys), with luxury hotels a mere 17% (29,000 keys across 230 hotels). The sector operates through owner, manager, and franchiser models, with owner-manager setups optimizing profitability and brand growth.

The hospitality market spans luxury, premium (upper upscale and upscale), midscale, and economy segments. Luxury hotels, with larger rooms and top-tier amenities, command higher Average Room Rates (ARRs).

The demand-supply gap, especially in luxury, is widening due to rising incomes, premium preferences, and limited inventory. Barriers like scarce land, high capital costs, and long gestation periods keep supply constrained, driving ARR growth and occupancy (60–70% in luxury). The luxury segment’s Total Revenue per Available Room (TRevPAR) is 117% higher than upscale and 298% higher than midscale.

Meanwhile the Luxury segment? Almost 2x RevPAR growth compared to the rest of the industry.

The significant upside potential for ARR growth especially in luxury segments is obscene. India is still cheaper than Thailand, its closest peer in T&T.

So clearly there is strong demand, and not enough capacity to sustain it. Here are a few developments in the space of capacity addition:

220 New Airports by 2025: This ambitious plan enhances connectivity to remote and tier-2 destinations, cutting travel costs and boosting tourism-related businesses. It’s a transformative move for accessibility.
Mahindra Holidays’ INR 4,500 Crore Bet: MHRIL’s US$541.6 million investment will double its room capacity to 10,000 in 3–4 years, targeting leisure travelers. It’s a big win for domestic tourism, though narrower than religious or infrastructure initiatives.
EasemyTrip’s INR 1,000 Crore in Uttarakhand: This US$120.16 million investment for 4–5 marquee resorts strengthens Uttarakhand’s spiritual and leisure tourism appeal, creating jobs and aligning with sustainable goals.
Hotel Expansions: IHCL (85 hotels, 2,000–2,500 jobs in FY25), Lemon Tree (30 properties, 2,000+ rooms in 2024), Radisson (21 hotels in 2023), Oberoi, Accor, and ITC are expanding, catering to diverse segments and boosting capacity.

Corporate Travel: The Office Boom

India’s office sector is buzzing, with 2024 gross leasing volume (GLV) hitting a record 89 million square feet (MSF) across eight cities, up 19% from 2023, per Cushman & Wakefield. Bengaluru led with 25.93 MSF (29%), followed by Mumbai (17.84 MSF, 20%) and Delhi-NCR (13.14 MSF, 15%). Net absorption reached 50 MSF, surpassing 2019’s pre-COVID peak by 7 MSF. Global Capability Centers (GCCs) drove 27% of this growth, with 1,700 GCCs employing 1.9 million in FY24, projected to hit 2,100–2,200 by 2030 with export revenues of US$99–105 billion.

This office boom fuels corporate travel, boosting demand for business hotels and business retreats, especially in tech hubs like Bengaluru and Hyderabad.

Weddings, MICE, and F&B: The Party Never Stops

Food and Beverage (F&B) is a cash cow for hotels, with luxury segment F&B revenue per occupied room 1.9 times the industry average in 2023. Weddings and MICE (Meetings, Incentives, Conferences, Exhibitions) are major growth drivers. The Confederation of All India Traders (CAIT) reported 3.8 million weddings between November 23 and December 15, 2023, generating INR 4.74 lakh crore (26% YoY growth). India’s 600 million-strong 18–35 age group, the world’s largest millennial and GenZ cohort, drives this surge, fueled by rising incomes and changing consumption patterns. India hosts around 10 million weddings annually. The Indian wedding industry ranks second globally. According to a report published by the Economist, the wedding industry is the fourth-largest industry in India, recording a huge spending of US$ 130 billion per year.

High Net Worth Individuals (HNWIs) are set to grow 107% to 1.65 million by FY27, and Ultra HNWIs (net worth ≥US$30 million) will rise 50.1% from 13,263 in 2023 to 19,908 in 2028, per Knight Frank’s The Wealth Report 2023 & 2024. Destination weddings in Jaipur, Udaipur, Goa, and Delhi are booming, with buyouts and large-format weddings generating INR 25–30 million (US$300,000–360,000) per event for luxury hotels. Hotel expenses account for 50% of destination wedding spend.

Risks Facing India’s Hospitality and Tourism Sector

India’s hospitality and tourism sector, while promising, faces several risks that could hinder its growth and profitability. Below is an analysis of key risks, including their implications and additional factors impacting the industry.

1. Dependence on Domestic Tourists and Price Sensitivity

Foreign Tourist Arrivals (FTAs) are a major driver of Average Room Rate (ARR) growth across Asia, as seen in destinations like Bangkok and Bali, where FTAs contribute to higher Revenue Per Available Room (RevPAR) by paying premium rates. In contrast, India’s hospitality sector relies heavily on Domestic Tourist Visitors (DTVs), who are often price-sensitive. Sustained ARR increases may not be feasible in this market, as higher rates could push demand toward the unorganized sector, such as budget guesthouses or unregulated homestays.

Limited FTA growth due to visa complexities or global economic uncertainties may cap premium revenue streams.
Price wars among hotels to attract DTVs could erode profit margins.
FTAs aren’t as enthusiastic about India as other south east asian countries.

2. Economic and Seasonal Vulnerabilities

The luxury hospitality sector in India depends on discretionary spending by leisure tourists and demand from business travelers, both of which are tied to the country’s economic performance. A slowdown in GDP growth, corporate cost-cutting, or global economic headwinds could reduce demand. Additionally, the industry faces seasonal fluctuations due to off-peak periods and unfavorable weather conditions, such as monsoons or extreme heat, which can deter travel.

Geopolitical tensions or global crises (e.g., conflicts or pandemics) could disrupt international travel, impacting luxury hotels reliant on high-spending FTAs. The recent Pahalgam attack and Iran Israel war caused certain disruptions in the sector due to travel restrictions and closed airspaces.

3. Rising Competition and Alternative Accommodations

The luxury hospitality sector faces increasing competition from new entrants, including international chains expanding in India, and alternative accommodation platforms like Airbnb, which offer unique or cost-effective options. If consumers perceive these alternatives as comparable to luxury hotels in terms of experience or value, hotel performance could suffer. Additionally, direct competition from established luxury brands like Taj, Oberoi, and Marriott intensifies pressure on market share and pricing.

Rapid growth of short-term rental platforms may appeal to younger or experiential travelers, diverting demand from traditional hotels.
New entrants may leverage aggressive marketing or loyalty programs, challenging established players to maintain customer retention.

Conclusion

India’s hospitality and tourism sector is on the cusp of a remarkable transformation, and it’s hard not to be optimistic about its trajectory. Fueled by a rapidly growing economy, increasing disposable incomes, and a young, urban population eager to travel, the industry is gaining momentum. In 2023, domestic tourism reached an impressive 2.5 billion visits, while 18.89 million international visitors arrived, setting the stage for the sector to contribute over INR 12,356 crore (US$59 billion) by 2027. The luxury segment, though only 17% of branded hotel inventory, stands out with occupancy rates of 60–70% and strong ARR growth, attracting travelers to wellness retreats, heritage properties, and cultural destinations. The corporate travel market, bolstered by 89 million square feet of office leasing in 2024, and the thriving wedding industry, which generated INR 4.74 lakh crore in late 2023, further drive demand. Yet, challenges remain—reliance on price-sensitive domestic tourists, seasonal variability, and competition from platforms like Airbnb could pose hurdles. By streamlining visa processes, improving infrastructure, and balancing affordability with premium offerings, India’s hospitality industry has the potential to establish itself as a global leader in tourism.

Disclaimer: We own some of the hotel stocks discussed above in our Capitalmind PMS portfolio. This article is intended solely for informational purposes and should not be considered as an investment recommendation.

Disclosure: This report has been authored by Aditya Dhruv, Research Analyst at Capitalmind PMS, and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific view(s) in this report.