Summary:
- Strengthening MSMEs can unlock India’s domestic tourism potential, CRISIL reported.
- Weak supply-side conditions limit tourism growth and livelihoods.
- Better safety, hygiene and service can increase visitor spend.
INDIA’S DOMESTIC TOURISM sector has not yet realized its full economic potential due to weak supply-side conditions, according to a report by Credit Rating Information Services of India Ltd. Strengthening Micro, Small and Medium Enterprises, destination infrastructure and service quality is crucial to converting high visitor volumes into higher incomes and sustainable livelihoods.
The CRISIL Intelligence report, “Tourism for Livelihoods: Building Circuits of Growth in India”, found that tourism accounted for 2.96 billion domestic visits in 2024 and employed more than 1 percent of the workforce, while contributing around 5 percent to GDP, well below the global average of 10 percent. The report attributes this gap to weak supply-side conditions that limit the sector’s ability to translate visitor volumes into higher incomes and stable livelihoods.
MSMEs dominate India’s tourism sector, operating in accommodation, transport, guiding, food services, crafts and experiences, allowing income to reach towns, villages and heritage areas, the report said. However, these units have limited capacity to move up the value chain, restricting incomes, margins and year-round employment opportunities.
“Tourism is already a major livelihood engine for India, but its economic potential remains underutilized,” said Binaifer Jehani, CRISIL Intelligence’s senior director and business head for assessments. “The challenge lies not in generating demand, but in strengthening the ecosystem’s capacity to translate scale into value through robust enabling conditions—destination-level infrastructure, service standards, safety perceptions and ease of travel.”
Along with improving destination-level conditions, targeted support for tourism MSMEs is key to converting visitor demand into higher-value outcomes. MSMEs provide services across accommodation, transport, food, guiding and local experiences and influence a destination’s ability to deliver consistent hospitality and sustainable livelihoods.
Manasi Kulkarni, CRISIL Intelligence’s associate director for assessments, said the tourism sector’s ability to generate higher-value livelihoods depends on how effectively MSMEs can deliver quality experiences.
“Without better access to finance, skills and market linkages, many MSMEs remain confined to low-margin operations, limiting their ability to improve services, retain workers and scale sustainably,” she said.
Although inbound tourism to India has grown steadily, international visitors account for only 1 percent of total arrivals, the report said. Visitor flows are concentrated in short-stay and diaspora travel, while higher-spending leisure tourists from advanced economies remain underrepresented. In contrast, outbound travel by Indians has risen sharply, highlighting unmet domestic demand for premium and experiential tourism.
Improving safety, hygiene, service quality and destination management can boost visitor spend and length of stay, which is key to converting tourism growth into sustainable livelihoods, especially for women and youth.
Unlocking tourism’s full potential requires supply-side strengthening, including circuit-based infrastructure, safety and service standards, sustainable destination management, integration of MSMEs into value chains, targeted skilling and better access to finance and formalization, CRISIL said. Coordinated action can help tourism move from a volume-led sector to a high-value livelihood engine, providing more resilient income opportunities.
Union Tourism Minister Gajendra Singh Shekhawat recently stated that India’s foreign tourist arrivals fell to 1.65 million in the second quarter from 2.62 million in the first quarter, before rising slightly in the third quarter. The decline was mainly due to fewer visitors from Bangladesh, seasonal travel patterns and the global geopolitical climate.
