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Title Investment Opportunities for Eco and Rural Tourism in IndiaSustainable means to achieving Economic Development

Author Mohanjit Singh, Vice President, Infrastructure – Advisory and FinanceYES Bank Ltd.

Key Inputs FICCI

Disclaimer The information and opinions contained in this document have been compiled or arrivedat from sources believed to be reliable, but no representation or warranty expressed ismade to their accuracy, completeness or correctness. This document is for informationpurposes only. The information contained in this document is published for the assistanceof the recipient but is not to be relied upon as authoritative or taken in substitution for theexercise of judgment by any recipient. This document is not intended to be a substitutefor professional, technical or legal advice. All opinions expressed in this document aresubject to change without notice.

Neither FICCI nor YES Bank or other legal entities in the group to which it belongsaccept any liability whatsoever for any direct or consequential loss however arisingfrom any use of this document or its contents or otherwise arising in connection herewith.

Contact Address

Federation of IndianChambers of Commerceand IndustryFederation HouseTansen MargNew Delhi 110 001Tel: 91 11 2373 8760 – 70Fax: 91 11 2372 1504Email: [email protected]

YES Bank LimitedRegistered Office:9th Floor, Nehru CentreAnnie Besant Road, WorliMumbai 400 018Tel: 91 22 24900650 / 90Fax: 91 22 24914986Email: [email protected]@yesbankltd.com

YES Bank LimitedDelhi Regional Office48, Nyaya MargChanakyapuriNew Delhi 110 021Tel: 91 11 5168 0140 – 43Fax: 91 11 5168 0144Email: [email protected]

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Foreword

Economic development themes during the last century have focused on indiscriminate consumption oflargely non-replenishable natural resources. This has led to severe environmental degradation andecological imbalance along with systemic problems like the disturbance of natural cycles and globalwarming. The current situation presents us with an imminent case for examining a more sustainableapproach towards infrastructure development. Business and entrepreneurship in developing countrieshas to go hand in hand with good citizenship and transparent corporate governance.

While tourism has exploited the available resources of a local area, often with scant respect for theimpact on local communities and economy; eco and rural tourism, which on a piecemeal basis haveaddressed this issue, have also been prevalent for a long time. But perhaps the greatest significance ineco and rural tourism’s evolution has been its combination with sustainable tourism to provide aholistic approach to regional and community development – in terms of employment generation, alternativeincome, sustainable infrastructure development, community development financing etc. Rural Tourism,especially, has a significant potential for acting as a catalyst for regional development.

As a leading industry Federation, FICCI has been at the forefront in this domain, including activeparticipation in various discussion forums and submitting a 13 point charter to the Government of Indiaon ways to promote tourism. The Federation has also been proactively disseminating information to theIndian stakeholders and increasing the awareness levels to enable the Indian industry as well as policymakers to gear up for exploiting the tremendous business opportunity. FICCI believes that the involvementof the financial and banking sector is critical for a broad-based development of the Eco and RuralTourism sector in India, leading to an overall economically sustainable development.

However, the moment one talks about the sustainable development, there is the question of whether sucha sustainable development model would satisfy the criteria of being economically viable and commerciallyprofitable? YES Bank believes that there is a subset within the eco and rural tourism universe that isprofitable on a standalone basis, and is amenable to commercial norms of financing. YES Bank believesthat creation of an Ecotourism Development Fund would alleviate the biggest bottleneck for the bloomingof this sector – the common infrastructure development.

We are sure that this conference would go a long way in demonstrating the tremendous investmentpotential and financial attractiveness in this nascent, yet promising sector and emphasizing the need tomove towards using eco and rural tourism as a measure to achieve sustainable regional economicdevelopment.

Amit Mitra Rana KapoorSecretary-General Managing Director & CEOFICCI YES Bank Ltd.

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“…… It has been estimated that in a national

park in Kenya, each lion is worth US$

27,000 per year and each elephant herd

US$ 610,000 in terms of visitor revenues per

year. Also, each hectare of the park is

estimated to yield profits that are 50 times

more than the net profits expected from the

land were it used agriculturally …...”

On the commercial benefits of Ecotourism

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CONTENTS

Tourism Industry – Overview ...................................................................... 7

Ecotourism .................................................................................................. 10

India as an Ecotourism destination .............................................................. 16

Hurdles to eco tourism and strategies to overcome ..................................... 22

Financing of Eco tourism projects ................................................................ 33

Private-Public Partnership in Ecotourism ..................................................... 39

Conclusion .................................................................................................. 40

Annexure .................................................................................................... 41

References .................................................................................................. 47

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Tourism Industry – An Overview

The most important economic feature of tourism related activities is that they contribute to three high-priority goals of developing countries, viz., generation of

• income,• employment, and• foreign exchange earnings

In this respect, the tourism sector plays an important role as a driving force of economic development.The impact this industry can have in the different stages of economic development depends on thespecific characteristics of each country. Given the complexity of tourism consumption, its economic impactis felt widely in other production sectors, contributing in each case toward achieving the aims of accelerateddevelopment (See Figure 1).

RegionalDevelopment

GovernmentEarnings

Employmentbenefits

Environmentprotection

TourismIndustry

Figure 1 – Benefits of Tourism

Tourism has a very strong linkage to the socio-economic progress of a country. It has been demonstratedthat

• Tourism industry has a very high revenue-capital ration.– In India, it is estimated that every 1 million additional visitors could translate into Rs. 43

billion of revenue generation for the industry.• Tourism industry has one of the highest employment-investment ratio

– Every additional investment of Rs. 1 million has the potential to generate 47 jobs– Every direct job created leads to creation of 11 indirect jobs

What is Vision 2020 for tourism in India?In its endeavour to position India as a leading destination in the world, the Vision 2020 for tourism inIndia states 3 basic objectives:

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• The total number of persons employed by 2020 in the tourism sector would be 50 million personsi.e. one in every eight employed.

• The contribution of tourism to GDP will be 7% by the year 2020 as against 4% today• Thirdly that the number of international visitors to India will be 40 million by 2020 as against to

2.5 million now.

Some aspects related to tourism that impact the economy at large can be identified as under:

Elements of Supply and Demand

Overall tourism is expected to continue to grow more rapidly than world economic output as a result offactors such as population growth, rising incomes and employment, shorter work weeks in many parts ofthe world, and the increasing integration of the world’s economies and societies. The rapid growth ofspecialty travel is fueled by some of the same factors, but there are a number of additional explanations:the boom in outdoor recreation and the new interest in health and fitness, for example. Environmentalismis another of the elements that have changed people’s attitudes about how they should spend theirvacations.

Contribution to GDP

The tourism sector contributes significantly to GDP earnings in countries that have well exploited tourismindustry - though this contribution is not reflected in the domestic income and product accounts of mostcountries. For e.g., Bahamas is one extreme case wherein tourism accounts for about 1/3rd of GDP, andmost sectors of economic activity are directly or indirectly linked to it.

Not all tourism receipts are retained within the economy. In fact, there is an outflow of foreign exchangefor some of the goods and services consumed by visitors, as well as for capital goods invested in tourismand for payments abroad. Import needs depend on the level of development and the degree ofdiversification of a country’s economy. These needs are also dependent on the availability of substitutesfor imported products and on the qualitative level of the tourist supply in each country.

Tourist Income Multiplier

The tourist income multiplier, which is a coefficient of amount of income generated by a unit of tourismexpenditure, can be significantly higher if majority of the tourism chain comprises host-country businessesand travel services offered by local communities. When a country’s natural resources are marketed byforeign operators, a substantial portion of the value-added may be created and captured by these operatorsand therefore not resident in the country.

Income Distribution Effect

The manner in which tourism income gets distributed offers one of the strongest socioeconomic argumentsin favor of tourism development.

As regards income generation and expenditure, tourists prefer to travel in regions with little urbanization,and probably, of little agricultural value. Tourism demand originates in urban concentrations where thehighest incomes are found- and a percentage of such income is spent in areas that are geographicallydifferent from the tourist’s home base, reinforcing the process of internal income redistribution.

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Internationally, a portion of the tourism consumption by developed countries occurs in developing countries,favoring the process of international income redistribution.

The income generated tends to favor employment, both directly and indirectly, because tourism involvesplenty of personal services. It has been estimated that, worldwide, tourism directly or indirectly supportssixty-five million jobs, including hotel managers and staff, taxi drivers, tour operators, and shop attendants,among others. Secondary employment is generated in agriculture, industry, handicrafts, and services.

The concept of Satellite Tourist Accounting System, a concept to capture the complete socio-economicbenefits of tourism on a region’s economy has been explained at length in the later part of the Report.

Tourism and Balance of Payments

Tourism can make an important contribution to a country’s balance of payments. Tourism offers developingcountries the possibility of diversifying their export earnings, particularly given that (i) traditional exportsare subject to price fluctuations and (ii) there is a trend toward reducing the administrative, monetary,and border formalities that affect international tourism mobility.

The tourism sector has the capacity to recover foreign-currency investments in a very short period of time.The World Tourism Organization (WTO) estimates, for instance, that a medium-class beach hotel in adeveloping country will earn back in one year the entire foreign exchange required to build and equip it.

Barring a few exceptions, the terms of trade for developing countries have traditionally been unfavorable,because of fluctuations in the prices of raw material exports. But in tourism, if the index of averageinternational tourist expenditure is taken as the expression of the price of the international product, theprices received have enjoyed greater stability than the prices of raw materials - in fact, prices havetended to increase in a stable manner, because, among other reasons, of the demand for holidays, thegrowth of business travel, and the rigidity of destination supply in the short and medium term. It istherefore a sector that tends to improve the terms of trade of an economy in the medium as well as theshort term.

Ecotourism

Ecotourism, both as a practice and as a concept, has come a long way over the years. From earlyexperiments in countries such as Kenya and Costa Rica, and claims of “Greenwashing”, ecotourism hasspread in both name and practice. In projects like St. Paul’s Community Paddle Boat Tour in Philippines,the Chalalan Ecolodge in Bolivia and Il’Ngwesi Camp in Kenya, to name a few, ecotourism is bringingprotection to biodiversity and economic gains to local peoples. But perhaps the greatest significance inecotourism’s journey has been how it has led to the rise of the global sustainable tourism movementevident in the Convention on Biological Diversity guidelines on “Sustainable Tourism Development.

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Eco Tourism

There have been many attempts to define ecotourism, a difficult task, since there are many varieties ofnature-related tourism that can legitimately be called ecotourism. Roughly speaking, Ecotourism is tourismpractised in relatively undisturbed natural areas, for the main purposes of admiring and learning moreabout them; intrinsic to this definition is the need for ecotourism to produce a minimal impact on the areavisited. European Federation of National Parks has defined sustainable tourism as: “all forms of tourismdevelopment, management and operations which maintain the environmental, social and economicintegrity and well-being of natural, built and cultural resources in perpetuity.” The International Ecotourism Society (TIES) defines ecotourism as “responsible travel to natural areas thatconserves the environment and improves the well-being of local people.” This means that those whoimplement and participate in ecotourism activities follow the following principles:

• Minimize impact• Build environmental and cultural awareness and respect• Provide positive experiences for both visitors and hosts• Provide direct financial benefits for conservation• Provide financial benefits and empowerment for local people• Raise sensitivity to host countries’ political, environmental, and social climate• Support international human rights and labor agreements

The Five Main Ingredients for Ecotourism

According to the United Nations, the five basic principals required for ecotourism and sustainable travelare:

• It’s main motivation is “the observation and appreciation of nature as well as the traditionalcultures prevailing in natural areas”

• It contains “educational and interpretation features”• It is organized “for small groups by specialized and small, locally owned businesses”• It minimizes negative impacts “upon the natural and socio-cultural environment”• It supports the protection of natural areas by 1) generating income for host communities;

2) providing alternative employment and income opportunities; 3) increases awareness of theneed for conservation of natural and cultural assets.

What are the characteristics of Ecotourism

Experience orientedIn sparsely populated locationsIn predominantly natural environmentWith a focus on outdoor activitiesThrough small establishments with part-time involvement of the local communityMeshing with seasonality and local events

Based on preservation of culture, heritage and traditions

The value of ecotourism market in developing countries is estimated to be in the range of US$ 5 -10billion annually. Evidence suggests that the number of ecotourists is growing by around 20% per annum.It is estimated that they account for approximately 7% of all international travel expenditures today.

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Properly planned and administered ecotourism makes it possible to manage the tourism flows in order tomaximize the benefits and limit the negative impacts.

This brings us to the next question – “Whether ecotourism and Sustainable Tourism areinterchangeable?”

The concept of sustainable tourism should not be confused with ecotourism. Ideally, all tourism activities,be they holidays, business, conferences, congresses or fairs, health, adventure or ecotourism itself, mustbe sustainable. This means that the planning and development of tourism infrastructure, its subsequentoperation and also its marketing should focus on environmental, social, cultural and economic sustainabilitycriteria, so as to ensure that neither the natural environment nor the socio-cultural fabric of the hostcommunities will be impaired by the arrival of tourists; on the contrary, local communities should benefitfrom tourism, both economically and culturally. Sustainability implies that enterprises, as well as thecommunities in which they operate, have something to gain from tourism. However, for ecotourism, sustainability is a much stronger imperative than for other forms of tourism (SeeFigure 2). Unsustainable ecotourism practised puts at risk the survival of the natural environment that isthe very bedrock of the ecotourism business. What are the elements of ecotourism that make it sustainablein the long term?

• Ecotourism must contribute to the conservation of natural areas and the sustainable developmentof adjacent areas and communities.

• The planning of ecotourism must include strict criteria for territorial zoning, including reservesand low-impact and medium-impact areas.

• The planning and design of ecotourism facilities, especially hotels, restaurants and touristinformation centres, should be in such a way that any negative impact on the natural and culturalenvironment is minimized; ideally, building materials, architectural styles, furniture and décorshould be local, and low-pollution energy sources should be used.

• The means of transport and communications to be used in ecotourism areas should have a lowimpact. For e.g., sports involving noisy or heavily contaminating means of transport shoulddefinitely be prohibited in these areas.

• Appropriate legal and institutional mechanisms should be established at national and local levelto facilitate and make effective the orderly participation of local communities in the processes ofplanning, developing, managing and regulating ecotourism.

• Mechanisms to enable a sizeable proportion of the income resulting from the arrival of ecotouriststo be channelled to the local communities and/or to conservation of the natural heritage shouldbe put in place.

• While everything above is important, it is equally important to ensure that ecotourism is a viablebusiness, i.e., be economically sustainable.

• The costs of mitigating possible negative effects of ecotourism activity should be assessed andincluded in the cost-benefit analysis of any ecotourism project.

• A certification system to be put in place to ensure that self-styled ecotourism facilities and operationsare consistent with ecotourism principles and regulations.

• Education and training are prerequisites for a sustainable ecotourism activity. Staff of companies,the local population and the potential guides should receive training on general and specificaspects of ecotourism.

• The provision of complete and quality information is one of the elements that differentiate theecotourism from traditional tourism. Various forms can be used, for e.g., pamphlets, brochures,

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books, interpretation/visitor centres or ecomuseums (which ideally should use traditionalarchitecture and materials from the locality), properly signposted nature trails, and, of course,guides.

• Both the marketing channels and tools, and the means for promoting ecotourism products shouldbe consistent with the type of tourism the consumer is being offered, and with the typology of theecotourists.

Figure 2 – Sustainability aspects of ecotourism

EcoTourism

Ecological S

ustainability

Economic Sustainability

Social Sustainability

Cultural S

ustainability

Maintenance oflocal geographicalfeatures and flora

& fauna

Maintenance ofsocial harmony

and customsfabric

Maintenance ofdistinctive cultural

traits of thecommunity

Maintenance ofeconomic gainsand passage ofsame to localcommunity

Recognition of ecotourism by United Nations

The UN had declared year 2002 as the International Year of Ecotourism(IYE) with the purpose to review ecotourism experiences around theworld, in order to consolidate tools and institutional frameworks thatensure its sustainable future development.

Ecotourism, if properly planned and managed, can be a viable sourceof economic benefits for governments, private entrepreneurs and localcommunities. Furthermore, it can serve as an effective tool for theconservation of natural and cultural assets.

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The Mohonk Agreement

In November 2000, the Ecotourism & Sustainable Tourism Certification Workshop was convened by theInstitute for Policy Studies at Mohonk Mountain House in New Paltz, New York State. The Workshop wasattended by tourism certification specialists and the discussion revolved around issues pertaining to relevantoperational standards for ecotourism operators. It began to lay the foundations for creating ecotourismand sustainable tourism certification principles and standards as well as for an international accreditationsystem under the terms of what has become known as the Mohonk Agreement.

What comprises Ecotourism?

As has been explained, ecotourism has interplays for tourism with attention being paid to nature, localcommunity and culture and adventure activities.

So, what all comprises ecotourism?

As can be seen from the Figure 3, Ecotourism has many facets. These include:

Figure 3 – Facets of Ecotourism

Rural TourismRural cuisine, culture

Religious TourismPilgrimage centresReligious festivals

Adventure TourismAdventure sports, bird

watching, fishing

Nature TourismWildlife, natural

landscape, botanicalexcursions

Farm TourismAgrarian lifestyle

ECO TOURISM

Ethnic TourismHaats , Local crafts,arts, Fairs & Melas

Farm tourism – This can also be classified as a form of rural tourism, whereby a farm or agriculture settingforms the backdrop, alongwith activities such as educational tours, farm visits, agricultural heritage festivals,agricultural museums and commodity fairs centered around farms.

The tourism product herein can range from a farm stay (where the stay, activities and meals etc. arecarried out in a farm itself) to a country stay, to a farm visit.

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Rural tourism – Tourists with an appetite for village lifestyle and settings can be potential targets for thiskind of ecotourism. People can stay in live villages wherein accommodation is in huts similar to the onesin which villagers stay, eat meals that are normal food in the village and transport and communicate thesame way as the village does. Or, a variant of that could be people going to an artificial village typesetting on the outskirts of an urban area, to experience the village life style. While the former is moregenuine, the later is more easily acceptable to the tourists. This could also take the shape of way sidehalts/ detours for tourists, enroute to a major tourist destination, where they halt at a village whereadequate facilities have been developed in cooperation with the local populace to showcase the cultureand lifestyle of the village alongwith the arts and crafts of the place.

Ethnic tourism – These ecotourism products are catering to tourists that have interest in the heritage andtraditions with a desire to understand and appreciate the varied crafts and traditions of a local community.This instills a sense of pride amongst the visitors as well as local community about the local culture andheritage.

This could be in the form of fairs and melas, village haats or other form of display of local crafts and arts.Local fairs are a popular mechanism to showcase regional cultural heritage with local folks colourfullyclad performing dance and music events, and other events such as drama, snake charmers, magiciansetc. Haats are periodic (mostly weekly) village bazaars wherein the village folk assemble to trade in theirproduce, including farm, animals and artifacts etc. Tourists find this a fancy idea to shop amongst thelocals. Having special displays of rural and cultural artifacts and tours centered around them are anothermanner of cultural tourism.

Pilgrimage / Religious tourism – India is home to several religions of the world and, thus, has a largenumber of shrines dedicated to various gods / goddesses and catering to different religions. For e.g., theBodh Gaya for the Budhists, Hardwar/ Rishikesh, Allahbad, Varanasi, Ujjain etc. for Hindus, Amritsar forSikhs, Ajmer for Muslims etc.

Most of the religious shrines and pilgrimage centres are found in small towns often with a location specificambience. Religious travellers account for a major proportion of the domestic tourists segment.

Nature tourism – For tourists looking for a non-urban, natural setting in the backdrop of nature, there areseveral options that offer unpolluted environs, beautiful lakes, beaches, waterfalls and forests teeming withwildlife. Unlike the popular but crowded options, nature tourism offers countryside havens with scenicvistas.

Adventure tourism – Indian landscape offers several natural settings for adventure tourism like fishing, birdwatching, river rafting and rock climbing etc.

Benefits of eco and rural tourism

Having looked at what eco and rural tourism is and what facets it has, let us consider what benefits it offersover conventional tourism:

Alternative income generation: Since ecotourism involves significant participation of the local community,local folks are able to earn additional income that replaces income earned through destructive activitiessuch as charcoal-making, hunting, illegal logging and fishing; and may supplement the normal businessincome. For rural households, this can form a significant part of their income, and can actually be the

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mainstay of the community. Moreover, since most of ecotourists comprise of the wealthy parts of a country’ssociety, this has the impact of a better wealth distribution than any of other methods.

Alternative energy and waste management: Ecotourism projects employ nature friendly technologies forpower generation such as biogas, solar panels, wind or hydropower. This helps reduce the strain onnatural resources that tourism can bring to a community. Waste management policies are also a keycomponent of the operations of each ecotourism venture.

Visitor management and impact monitoring: To ensure that visitor activities do not have any significantnegative impacts on the resources of the area, visitor management systems can be established that includezoning to control areas and numbers of tourists in certain areas, village ecotourism monitoring teams andenforcement regulations and mechanisms. This is important for rural tourism to be sustainable, since theclose contact with the tourists, who are amongst the most well-off of the society, should not lead to acultural shock and social fragmentation of the rural area.

Community employment and training: Staffing of most of ecotourism projects are through local communitymembers who benefit directly through skills training such as nature guiding, hospitality services, businessmanagement and English language. The community can also direct and influence the development oftourism in its area, and keep the majority of income earned within the community. For rural folks, this canbecome a mode of getting in close contact with the urban world, assisting them in bridging the gap andproviding them with skills that can be used to have other livelihood means than their original methods.

Community development financing: A portion of profits generated through these itineraries goes to fundingcommunity development projects, such as micro-hydroelectricity, irrigation, education and healthservices. While the support infrastructure gets developed for an ecotourism property, the local communityalso benefits through usage of the facility. Again, this benefit is most stark in the case of rural tourism,which often gets a much lower priority on the government’s list; and thus, enables the rural folks to getaccess to quality infrastructure at, hopefully, affordable cost.

Increased cultural value: The interest and enthusiasm shown by tourists for learning local cultural traditionsand heritage has a spin-off impact about its value among local community. Conservation is enhancedwhen private-sector investors and host governments are convinced that there is an economic rationale forestablishing protected areas. For semi-urban and rural areas in India, which till a decade back wereculturally isolated from the rest of the world, have had the “glamorous” glimpses of the western culturethrough the cable television and internet. The partial image created by such media enhances the attractivenessof the foreign culture with scant respect for the local customs. This could be prevented indirectly throughthe rural tourism.

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India as Eco tourism destination

About India, it has been said that – “There are some parts of the world that, once visited, get into yourheart and won’t go. India is one such place. When first visited, one is stunned by the richness of the land,by its lush beauty and exotic architecture, by its ability to overload the senses with the pure, concentratedintensity of its colors, smells, tastes, and sounds. It is as if all one’s life one had been seeing the world inblack and white and, when brought face-to-face with India, experienced everything re-rendered in brillianttechnicolor.”

In India, tourism is the 3rd largest foreign exchange earner but has started gaining prominence in thenational agenda only recently. With a 14% rise in international tourist arrivals in India and a 22% growthin foreign exchange earnings in 2003, tourism industry in India is getting on the path of acceleratedgrowth. It earned US$ 3.8 billion in foreign exchange in 2003 that was a 33% increase over last year(See Figure 4). Certain states such as Kerala have focused on an aggressive marketing strategy which hasresulted in greater inflows of tourists in these states - Kerala registered a 30% growth in tourism in 2003.Even Jammu & Kashmir, long a victim of negative sentiment, has seen impressive number of tourists in thecurrent season. There is a greater awareness amongst the policymakers towards the potential of the sector,and this has resulted in the states increasing their budgetary allocation for promoting tourism, for e.g.,Maharashtra has increased its tourism promotion related budget to Rs. 1 billion from Rs. 100 million in FY2003.

Figure 4 – Immense Potential of Indian Tourism Sector

While tourism as a whole is seeing resurgence thanks to the rejuvenation on the part of the tourists andaggressive promotion of certain states, ecotourism is witnessing a more subdued interest among thedomestic tourists and government circles.

Adventure and nature tourisms are seeing a faster growth as compared to other forms of ecotourism;although religious tourism remains one of the largest ecotourism forms in India amongst domestic tourists.

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Geographically, India is a perfect playing ground for a host of adventure sports like white water riverrafting, paragliding, mountain biking, scuba diving, hiking-trekking and rock climbing-rappelling. Whileforeign tourists comprise bulk of the adventure tourism market, past few years have seen a phenomenalincrease in the number of domestic tourists opting for an adventure holiday.

The tourism industry is expected to grow at 8.3% annually, to become Rs. 6,200 billion industry by 2010.The Government of India has recognized the importance of tourism infrastructure creation to cater to thisburgeoning demand by including tourism as one of the sectors covered in the Rs. 400 billion infrastructurecorpus that would be available to tourism projects along with airports and seaports.

Satellite Tourist Accounting System

World Tourism Organization (WTO) has developed a Tourism Satellite Account: RecommendedMethodological Framework (TSA:RMF), using which the World Travel & Tourism Council (WTTC) hascarried out an India specific study.

The TSA concept is based on a “demand-side” concept of economic activity, since the industry does notsupply a homogenous service like traditional industries like agriculture, manufacturing etc. It is defined bya diverse collection of products and services like transportation, accommodation, food & beverage,entertainment, government services etc. There are two basic aggregates of demand in the TSA:

Travel & Tourism Consumption

This represents the value of products and services that have been consumed and is the basic demand-sideaggregate used to construct an explicitly defined production-side ‘industry’ equivalent for comparison withall other industries. This includes Personal Travel & Tourism, which captures spending by economy residentson traditional services (lodging, transportation, entertainment, meals etc.) and goods, Business Travel,which mirrors Personal Travel & Tourism’s spending on goods and services but represents intermediateinputs used in the course of business or government work, Government Expenditures (Individual) by agenciesand departments which provide visitor services such as cultural (art museums), recreational (national park)or clearance (immigration/ customs) to individual visitors and Visitor Exports, which include spending byinternational visitors on goods and services.

Travel & Tourism Demand

This aspect builds on Travel & Tourism consumption to include Travel & Tourism products and servicesassociated with residual components of final demand. It is used to construct a broader ‘economy-wide’impact of Travel & Tourism. The residual elements of Travel & Tourism demand are Government Expenditures(Collective) made by agencies and departments associated with Travel & Tourism, but generally made onbehalf of the community at large, such as tourism promotion, aviation administration, security services andresort area sanitation services, Capital Investment by Travel & Tourism providers (the private sector) andgovernment agencies (the public sector) to provide facilities, equipment and infrastructure to visitors andExports (Non-Visitor) which include consumer goods sent abroad for ultimate sale to visitors (such asclothing, electronics or petrol) or capital goods sent abroad for use by industry service providers (such asaircraft or cruise ships).

By employing input/output modelling separately to these two aggregates (Travel & Tourism Consumptionand Travel & Tourism Demand), the Satellite Account is able to produce two different and complementary

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aggregates of Travel & Tourism Supply: the Travel & Tourism Industry and the Travel & Tourism Economy.The former captures the explicitly defined production-side ‘industry’ equivalent, direct impact only, forcomparison with all other industries, while the latter captures the broader ‘economy-wide’ impact, directand indirect, of Travel & Tourism. Through this process, the TSA is also able to determine that portion ofsupply, which it imports from abroad.

Next, the satellite account breaks down both aggregates of supply (Industry and Economy) into the directand indirect impacts of GDP, the main descriptor of economic production, as well as the various componentsof GDP (Wages & Salaries, Indirect/Transaction Taxes, Operating Surplus, Depreciation and Subsidies).

Beyond the regular TSA accounts, a separate analysis is done for Personal Income Taxes paid by Travel &Tourism generated employment and Corporate and Property Taxes paid by Travel & Tourism companies.Finally, one of the most important elements of the TSA is the Employment results, which can now bequantified for the basic Travel & Tourism Industry and the broader Travel & Tourism Economy.

Estimates for Indian Tourism industry using TSA forecasts

The TSA numbers for India indicates that by the year 2014, tourism industry would

• Generate economic activity worth Rs. 7000 billion• Provide employment to 28 million people• Contribute Rs. 2000 billion to India’s GDP• Invest Rs. 1660 billion in capital projects• Generate export revenues of Rs. 1270 billion

Clearly, the Indian tourism industry and its impact on the Indian economy, although already significant, isgoing to increase manifold in the coming years.

The North-East India

As can be seen in Figure 5, right at the top of north-eastern India, is Arunachal Pradesh, the ‘Land of theDawn-lit-Mountains.’ This is the first Indian soil to greet the morning sun. Over 50 distinct languages are

Figure 5 – The North-East India

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spoken in this state, which is home to Tawang, the largest Buddhist monastery in India, and the SessaOrchid Sanctuary and Orchid Research Centre at Tippi.

The largest of the North-Eastern states, Assam, consists mostly of the plains around the Brahmaputra andBarak rivers. It is best known for its’ tea plantations, which yield the strong Assam leaf tea, and the one-horned Rhinoceros, a species that once faced extinction.

Manipur, which literally means “the land of jewels”, has been described by Lord Irwin as “the Switzerlandof India”. Martial arts and a delicate, marionette-like dance characterize this tranquil green state, whichhas possibly the only floating National Park in the world - Keibul Lamjao National Park.

Meghalaya, meaning “abode of the clouds”, is one of the country’s newest and most remote states. Oneof only three states in India with a Christian majority, it is among the wettest places on earth.

Perched on the tip of the north eastern border of India, idyllic Mizoram, formerly known as the LushaiHills, houses some rare varieties of orchids. The Tropic of Cancer runs through the heart of Mizoram.

One of the smallest states in India, Nagaland is almost unexplored, making it a perfect getaway for theadventurous.

Tripura, the second smallest state of India, is completely off the beaten track. In spite of being mostly ahilly territory, most of the population lives in the plains. It is one of the most ancient of India’s princelystates.

Applicability of various ecotourism facets in India

As we had mentioned earlier, eco and rural tourism comprise of a number of sub-segments. Theseinclude Farm tourism, Rural tourism, Ethnic tourism, Religious tourism, Nature tourism and Adventuretourism. Let us try and analyze as to whether all the segments of eco tourism are relevant and applicablein India and in what form?

Farm Tourism

Though a popular concept in the developed countries, this segment hasits problems as far as India is concerned – as the agricultural farms inIndia are not developed in that respect. A replication of a farmenvironment created closer to an urban environment might be a substitutefor this segment; until some select pre-identified farms can be upgradedfor tourism purposes.

Rural tourism

India has enormous diversity and distinction between urban lifestyleand rural lifestyle. Thus, it seems that the market would be tremendousfor this segment – both domestic and foreign. However, like farm tourism,the Indian villages are not yet in a shape that they can handle tourists,in terms of support infrastructure, hygiene factors, capacity of localpopulation etc. thus, in the immediate form, this could be a recreated

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village type setting on the outskirts of an urban area, to experience the village life style. Some variants ofthis are already existing – Chokhi Dhani on the outskirts of Jaipur.

Ethnic tourism

This is an ideal product for India; and, infact, a select concepts have been triedout on this. The Surajkund Crafts Mela, held every year in Surajkund, Haryana,is a modified form of this concept, replicated close to urban centres. With its richcultural heritage, and lifestyle evolving from semi-rural settings, this can be a verysuccessful product in the Indian scenario. Indian cultural heritage has alreadyevinced the interest of foreign tourists. Select model villages that can be identifiedto showcase the local culture, customs and heritage is a good way to exploit thisopportunity (See Box).

Model Villages – Chaupals – A fusion of rural and cultural tourism

Indian cultural heritage and diversity is well known and appreciated globally. The tourists have been exposedto the cultural heritage in urban and semi-urban settings in India Festivals abroad and in recreated settingsclose to urban centres. It is appropriate that this concept is taken to the next level – to the village in terms of achaupal.

A Chaupal is the central place of a village where the villagers congregate every evening, on occasions ofcelebration and discussions, and where the village panchayat meets. Thus, it is a big open space that can holdlarge number of people. Such a place can be developed to showcase the local culture and artifacts; incollaboration with the local populace.

The travel and tour organizers can tie up with the village community, wherein at a periodic interval, smallgroups of tourists can be brought to the village, and there they can mingle freely with the locals and imbibe theculture, sights and sounds of the place.

The locals can have cultural programs and other local events, can display their crafts and art work, the touristscan have local delicacies and interact with the village elders. This way the tourists can experience the realvillage lifestyle and culture, and the local folk can get access to latest development s and earn supplementalincome to improve the quality of their lifestyle.

It represents a win-win situation.

Religious tourism

As mentioned, India is home to several religions of the worldand, thus, has a large number of shrines dedicated to variousgods / goddesses and catering to different religions. For e.g.,the Bodh Gaya for the Budhists, Hardwar/ Rishikesh, Allahbad,Varanasi, Ujjain etc. for Hindus, Amritsar for Sikhs, Ajmer forMuslims etc.

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Most of the religious shrines and pilgrimage centres are found in smalltowns often with a location specific ambience. Religious travellersaccount for a major proportion of the domestic tourists segment. Thus,this segment can also be explored and developed significantly givenproper attention on infrastructure.

Nature tourism

India has several virgin territories. It has the great Himalayas,the desert, the extensive green plains, the sea and the lakes.This kind of tourism appeals to special interest groups. And itrequires investments in special infrastructure. Thus, India canexploi t th is segment provided specia l focus i s paid toinfrastructure.

Adventure tourism

Adventure tourism also appeals to special interest groups. Theseopportunities can be created in cities also, for e.g., bungeejumping, but ecotourism means natural settings, and not man-made. This is often combined with nature tourism, as both involvetravel to remotely inhabited places that are far removed fromurban settings. Thus, transportation and travel infrastructure isvital to development of such segment.

As can be seen, India has significant potential in some form or other for all forms of ecotourism; however, the recurring theme that is inhibiting the development is infrastructure tohandle the tourists. This and other hurdles that impede development of this segment are coveredin the next section.

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Hurdles to Ecotourism in India andSuggested Solutions

As we have seen in the foregoing sections, India has amongst the largest tourism potential of anyother country – and the sheer breadth and variety that it has including the natural beauty, the cultureand heritage, the rural and village ambience should make India a first and preferred choice for anytourist.

Yet, we find that India does not attract even a fraction of the worldwide tourist numbers that it oughtto attract. What then are the real reasons that inhibit the realization of this immense tourism potentialthat India has ? And what should the government and the private sector do to change the scenario?

We provide below some of the key hurdles that tourists and tour operators face when looking atecotourism in India, and especially in Himalayan areas.

Government of India / States role

Clearly the Government has had at best a piecemeal approach towards tourism till the last few years– considering it a fringe business. Tourism worldwide accounts for 10% of the world GDP and onecannot today imagine a France or Italy without tourism industry? This realization is only slowlydawning in India.

Taxation impact

The taxation impact can be viewed from two perspectives – the taxes on expenditure by tourists andthe fiscal taxes and benefits given to the ecotourism industry.

The impact of taxation is very high on the tourism sector. For e.g., 10% is charged as expendituretax. In addition, every state charges a luxury tax and a sales tax on food and beverages at varyingrates. If all these taxes are added, one can arrive at astronomical bills for staying in quality propertiesin India – it could vary between 20% to 50% of the billed amount. This is surprising considering thebig impact tourism makes to the economy in terms of foreign exchange earnings and employmentpotential, and also considering the fact that worldwide taxation rates are low.

As regards the fiscal benefits available to investors, besides the inclusion of tourism in the infrastructurecorpus in this years’ budget, there has not been anything of concrete in recognition of the immenseimportance of this sector to the economy and regional development.If the sector has to grow by the projected 20% growth rate, then the sector would need to beprovided with the infrastructure status and exemptions under Section 10(23G) of the I-T Act.

Evolving a tourism plan

The Government of India needs to convey its seriousness and support for ecotourism if this sector hasto flourish in India. To start with, Government has to evolve a vision statement for this sector. This issupported by a mission statement and then by credible action steps that would realize the vision ofthe Government in this segment.

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Ecotourism Focus of Australian Government

The Ecotourism Australia vision

“To be leaders in assisting ecotourism and other committed tourism operations to becomeenvironmentally sustainable, economically viable, and socially and culturally responsible”.

Ecotourism Australia Mission Statement

Ecotourism Australia’s Mission is about growing, consolidating and promoting ecotourism and other committedtourism operations to become more sustainable, through approaches such as:

• developing and adopting standards for sustainable practices

• increasing the professionalism of those working within the tourism industry

• streamlining policies and processes that have in the past complicated operating in protected areas

• assisting operators to improve the quality of interpretation offered about the places they visit • improving positioning and financial viability for operators who adopt sustainable practices

• contributing to conservation solutions and projects; involving and providing benefits to localcommunities

• marketing the principles of sustainability to increase awareness across the tourism industry

The Nature and Ecotourism Accreditation Program

The Eco Certification Program is Ecotourism Australia’s flagship program. Ecotourism and nature tourismaccreditation provide industry, protected area managers, local communities and travelers with an assurancethat an accredited product is backed by a commitment to best practice ecological sustainability, natural areamanagement and the provision of quality ecotourism experiences. Developed in Australia, the Eco CertificationProgram is now being exported to the rest of the world as the International Ecotourism Standard. Successfulcompletion of Eco Certification Program includes Membership of Ecotourism Australia.

The EcoGuide Certification Program

The EcoGuide Australia Certification Program is an industry driven certification program for nature andecotour guides. It provides an industry credential that rewards guides that achieve specified competenciesand standards. The program is designed to enhance Guides competencies, and assess a Guides skills,knowledge, personal attributes and actions. The EcoGuide Australia Certification Program compliments andsupports the Eco Certification Program. Successful achievement of EcoGuide Certification includes Membershipof Ecotourism Australia and attractive professional development and networking opportunities.

Other Association activities

In addition to the operation of the Eco Certification Program and the EcoGuide Australia program, EcotourismAustralia is active in a range of areas including:

• an on-line searchable database of EA members available through our website • a monthly electronic newsletter and email group for members • lobbying for decisions and initiatives that improve the viability of the ecotourism industry • advocating for sustainable practices to be implemented across the tourism industry • seminars and workshops on marketing, ecotourism business management, sustainable practices,

the Eco Certification Program, Eco-guiding issues and training • production of a range of publications • a lively, interesting and informative annual national conference held in a region with local ecotourism

options

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To take an example, Australia has been one of the leaders in developing ecotourism sector. TheAustralian Government has formulated a clear vision and mission statement and its intent in thissector, including an independent certification body that has one of the best reputations in the industrytoday. The details of the Australian government’s statements are provided in the box below.

The government of India also needs to view various ecotourism circuits and develop them as a wholecircuit rather than viewing each property as an independent project or the chain as a set of individualprojects. Each ecotourism circuit needs to be taken up as a specific investment proposal based onpotential foreign exchange earnings, and marketing as a package catering to a theme. Adoption ofa targeted approach, where an entire circuit is developed, as against piecemeal development in anumber of circuits is preferred.

As has been mentioned, a holistic and integrated development of the ecotourism sector would requiresignificant funds in creation of supporting infrastructure and in capacity building amongst the localcommunity to manage and operate the sector. Governments do not have funds of the magnitude thatis required by the industry, and given the fact that these projects would require significant local levelinterest and less of large corporate house interest, external funding sources need to be identified.

One such enduring source can be an Ecotourism Development Fund (EDF). Such a fund can serve anumber of purposes including

• creating awareness for this important segment of tourism industry,• effectively communicating Government of India’s interest in developing this sector and• creating a pool of finances that can be channelized to develop the infrastructure for the

sector.

How would the corpus get created?

It can be done through multiple sources, for e.g.,

• Levying a cess on all hotel expenditures, that are not classified as ecotourism properties• A surcharge on all air travel out of India or increased airport user fees• Increased entrance fees for tourists to tourism properties (the excess of which would go into

a fund)

Clear guidelines and utilization pattern of the fund would need to be administered. Preferably, thefund management and operation needs to be handed over to a group comprising representatives ofgovernment, local communities, financial institutions and tourism organizations. These funds can actas catalyzers for raising additional funds from the market.

Negating the negative perception and reaching sustainable consumers

India has to overcome the disadvantage of having a negative perception amongst the western mediaand public, and the travel advisories that various western nations keep on periodically issuing ontravel to India. It may be noted that the media greatly affects both the investment climate and arrivalof tourists.

The opportunity to learn about local culture in North East India can be a way of attracting tourists to

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diversify their experience away from an exclusively wildlife and nature experience. This createseconomic opportunities for local communities. Much can be gained by a co-operative and co-ordinatedapproach to destination marketing. It is important to create a critical mass of quality products inorder to become a destination worth traveling to. Shared marketing brings economies of scale andcreates awareness in the tourist and the tour operator of the range of attractions in the area; this mayserve to extend the length of stay to the benefit of the community and of the industry. The importanceof internet marketing, NGOs, media, trade fairs and markets need to be well appreciated. Leadingmedia and other respected trade names through the ecotourism circuits can often create a positiveimage about these tours and can enhance the positive image about the region.

The marketing campaigns clearly need to differentiate between the domestic and international travelers,since the needs and expectations of each of these categories is different. It is now widely acceptedthat word of mouth publicity is invaluable and that something like 60% of visits are made on thebasis of some form of personal recommendation. Much of the marketing effort in which the industryengages, attempts to accelerate and support this word of mouth process.

There is a whole range of groups with which it is possible to work in developing nature and eco-tourism through:

• tour operators, both local and international;• informing guide book writers about the opportunities in new areas and new opportunities in

established destinations;• working through fairs and trade shows;• producing brochures;• Internet sites;• offering familiarization trips for operators and journalists;• in-flight videos and magazines to show during the period when visitors are thinking about

their holiday and on their way to the destination; and• awards for generating interest in new products and particularly good examples of ecotourism

practice

Encourage international exchange of information and know-how about nature tourism opportunitiesand operations. Multilateral and bilateral agencies can foster participation by developing-countrypublic agencies and private service providers in international nature tourism associations that canhelp them, through technical and management training, to meet the needs and interests of internationaland domestic nature tourists.

Transport connectivity

When a tourist plans an ecotourism vacation, hassle-free reaching the project site is important.Moreover, the experience of reaching the property is as important as the property itself. Thus, anefficient, reliable and economical mode of transport connectivity to the property is very important.

In this respect, the Himalayas are one of the poorly connected regions within India. While railwayscan be ruled out, good air connectivity to hub airports and efficient road networks thereafter to theproperty is important. As regards civil aviation, the tourists find it very difficult to visit India particularlyduring the winters, leave aside the remote airports. Capacity on key routes gets choked during peakseasons. Thus, the Government of India needs to enter into bilateral agreements that increase the

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number of seats available and also increase the options available to the tourists.

Access to some remote lodges may only be possible by air, which would require some form ofairport, terminal, navigational equipment, etc. The infrastructure required may lack supplementaryjustification from neighboring industrial or government welfare activities.

Roads - Quality roads are necessary for faster and efficient movementof tourists and related products from airports stations to the tourismproperties. The state of the roads (barring the national highwaysand certain state level highways) has been appalling. There areeither no roads, or if roads existed, either they had outlived theeconomic life and had not been maintained or they were grosslyinadequate to handle the volume of traffic.

However, in line with the vision of the Government of India to have world class highway infrastructure,rural and district level roads have also attracted attention. The recent focus by Government of Indiaon rural roads through Pradhan Mantri Gram Sadak Yojna (PMGSY) has the potential to transformthe face of rural India and provide quantum leap to economic development of the hinterlands. Theidea under the PMGSY is to have all-weather road connectivity to each and every village having apopulation of 5000 and above. Rural roads need to be integrated to NH either directly or throughState Highways (SH). To maximize the benefits of the scheme and bring in higher efficiencies, privatesector participation (PSP) is envisaged.

This development of rural roads, while benefiting the tourism industrywould also have a more pronounced benefit, since India is primarilyan agrarian economy where agriculture and related businessescontribute to around 24% of the GDP and provide livelihood tosome 700 million people. Inadequate road network inhibits theevacuation of farm produce to the markets resulting in huge quantitiesof wastages. Additionally lack of adequate roads is a key limitingfactor for agri-exports though India has tremendous productionadvantages and has a potential to become a leading exporter of several crops. It is our strong beliefthat a quality road logistical grid has the potential to facilitate transformation of India from anagricultural economy to an agri-business based economy.

The construction of the roads will have a multiplier effect on the Indian economy as it would generatean employment of 73 million man days a year during the better part of the decade. It would reducethe travel time by 50-60% on the completed stretches. World Bank estimates an annual saving ofUSD1.4 billion annually on completion of the project.

Airports - Airports are extremely crucial in development of tourism industry in the country. Airportsserve as the first direct experience that a tourist has of the country and that can leave a lastingimpact on the tourists. Unfortunately, the airport infrastructure in India leaves a lot to be desired.Congested airports, improper layout, monopoly of Airports Authority of India, lack of proper facilitiessuch as utilities and shopping areas and long delays in immigration clearances means that touristshave a harrowing experience getting into the country.

However, the Government of India has realized this fact, as also that government agencies are notbest placed to operate in this predominantly service oriented industry. Thus, airport sector privatization

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is poised to pick up in the coming years. Government of India hasalready announced privatization of Delhi and Mumbai airports.Greenfield airports like Cochin are already operating in the jointsector as an example of successful private sector airport project.Large greenfield airports in the private sector are being planned atBangalore and Hyderabad, besides, modernization and upgradation of several other existing airports.

Entry / Immigration Facilities

A number of us have traveled abroad. One of the starkest aspects of the Indian airports that we haveexperienced have been the immigration and entry / exit formalities and the time required at Indianairports vis-à-vis good quality international airports. The experience of a tourist commences themoment he / she touches down at the entry airport, and the impressions carried from hereon have alasting impact on the tourists.

The other aspect of the travel formalities is the difficulty in procuring a travel visa. While worldwidethe visa regime is being overhauled so that one either has a visa free situation (within the EU, fore.g.) or a visa on arrival (Singapore, Dubai). India can follow suit in certain aspects, and have bilateralvisa free arrangements with select countries and visa on arrival with a number of other countries.

Tourist services / utilities

Certain of the obvious requirements of international tourists would be clean airports, hassle freearrival, clean public utilities and accessible information kiosks and guides. We have some of themost revered religious sites; however, they have deplorable hygiene conditions.

Financing and Self-sustainability of the Ecotourism projects

From the standpoint of financing, ecotourism projects have very different needs. The developmentand maintenance of flora, fauna and other elements of purely biophysical environments such asnature parks, wildlife sanctuaries, or wetlands must be financed, as must physical structures to beused by tourists. Ecotourism projects usually require a larger lad acquisition than other tourismprojects - not only the immediate vicinity, but the surrounding area that makes up the ecotourismlandscape, and, the area that defines the habitat.

Heritage tourism projects usually involve restoration or conservation of historical structures such asmilitary forts or palaces; and restoring them requires significant investments. In addition access tobasic infrastructure such as water supply, lodging, food services, and public restrooms, nature andheritage sites require investments.

Involvement of local community

Involvement of local community is a crucial differentiator between a sustainable ecotourism projectand a conventional project. The higher the involvement of local community and the greater thedistribution of profits amongst the local community, the better the chances of success of the project.

Most of the ecotourism or heritage projects in India are handled by large hotel chains or franchised

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properties that have minimal involvement of local populace. This alienates the local population, andmakes it difficult for the property to sustain its attraction as an ecotourism property.

The local community, besides employment opportunities, also has a lot at stake in ecotourism projects,since many areas are in need of investment in roads, ports, airports, electricity, water supply, sewage,telecommunications, and other services. The additional investment costs necessitated by the adventof tourism properties would be marginal, yet be crucial to attracting investments into the region.

Capacity building

There is a general lack of awareness among local communities of the tourism potential within theircommunity, and thus they do not engage in it themselves. Thus, focused attention needs to be paid tolocal communities so that they appreciate the benefits and the demerits of tourism. By granting localcommunities rights over land they are enabled to secure income from tourism developments on theirland. Leasing concessions for the use of the communally owned land creates income for the trustfunds. It is important for governments to ensure that communities are trained to administer jointventures, as without capacity building it is difficult to sustain an equitable approach to management.Capacity building is essential if local communities are to become real stakeholders in tourism andconservation. Participation has to be real and not just a token if it is to be meaningful and empowering.

Quality and service standards were important in ecotourism as in other sectors of the tourism industry.This and the enhanced employment of local people require continuous skills development. Localeconomic linkages need to be encouraged for local sourcing and local business development. Thefundamental principle of business sustainability requires that business plans have to envisage thedevelopment of self-reliance. Profitability has to be achieved if initiatives are to be judged a success.Sustainability requires that an adequate marketing budget is covered from revenue.

Infrastructure

Any tourism activity can thrive only if the various links in the chain from the movement the touristdisembarks from the airplane to the moment the tourist embarks the airplane works seamlessly andefficiently. The needs for ecotourism development differ from those of traditional tourism and propertydevelopment. There may be a greater need to improve access to the attraction site or facility, and fora mode of development that does not interfere with sensitive habitats or historic areas. In additionaccess to reliable and potable water supply, lodging, food services and public restrooms and distinctivevisitor facilities are required; although the lodgings can be on a much smaller scale and less luxuriousthan traditional developments.

Infrastructure needs takes different forms, including:

• Integrated resort complexes, where the internal infrastructure, viz., roads, water supply,sewage, drainage, electric power distribution, telecommunications etc. is built according toa master plan and connected where necessary with the general infrastructure of the region.

• Tourism zones, where the upgrading of the local infrastructure is regarded as a prerequisitefor the private sector to invest in tourism projects.

Water and waste management – One of the primary requirements for a tourism venture in the remoteareas is a regular and uninterrupted supply of potable water and also systems to manage waste

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water and other waste. Himalayas have the advantage of having abundance of natural water springs,streams and underground water sources that can be tapped. In case the water source is remote,supply of the same to the tourism property needs to be built. Quality of water is immensely importantsince it may not be possible to transport bottled water to such remote distances.

Waste management practices are equally important; more so in case of eco tourism properties.Being remotely located these properties do not have access to a planned piped sewerage treatmentand disposal system that is common in large cities. However, the community and the tourism propertyneeds access to such a facility. This facility should be least intrusive, should not create permanentwaste dumps that become an eye sore and environmentally hazardous and should use natural processesto the extent possible. Land fill systems, dry pits, incineration systems and waste segregation aresome of the techniques that the tourism property developers would need t in-built into their propertydevelopment plans.

Power – Although some might argue that power might not be needed in eco tourism properties thatemphasize the nature aspect of eco tourism; however, it is pertinent to note that power would beneeded for a lot of support systems. It is also recognized that supply of grid power from large powerstations might not be economically feasible for remote locations and where the load requirement isnot significant.

In such situations, off grid small power generation projects based on wind power, run of the riverhydel projects, solar power and other renewable energy projects such as biomass based powerprojects have the potential to serve local needs. However, owing to the social nature and ruralelectricity supply, structuring commercially viable projects is difficult in the near future and effortswill remain government initiated. Government of India has identified agencies to act as facilitatorsfor rural electrification and has also formulated large number of schemes to partly fund the projects.These initiatives would be largely local government and community driven; and the tourism developerscan spur such development by installing an off-grid power project, that can sell excess generation tothe local community nearby.

The involvement of the local civic agencies and utilities is fairly important in sustaining the emphasison quality infrastructure provision. For e.g., a Kumbh festival held in India attracts over 2 milliontourists per day during the peak periods. In such a scenario, prompt and efficient handling by thecivic agencies can increase the number of tourists that can be handled and portray a much betterimage to the outside world of the stress that is laid on to the hygiene aspect.

Lack of Standardization / Eco-Certification

While the ecotourism industry in India is in its infancy, one aspect that confuses the tourists is thearray of eco-certification programs around the world. The World Tourism Organization estimatesthat more than 60 certification programs were created between 1992 and 2002; the EcotourismAssociation of Australia puts the number at more than 100 around the world. Hoping to cash in onthe growing interest in environmentally responsible travel, more hotels, resorts, and tour companiesare billing themselves as eco-friendly. But the lack of any global certification program is making thesearch for authentically green destinations a confusing affair. Historically, companies have used theterm eco simply because they offer outdoor activities, regardless of whether their practices areenvironmentally friendly.

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The differences among the existing certification programs can be pronounced, especially therequirements they impose on properties. While TIES has a globally accepted certification set, CostaRica’s Certification for Sustainable Tourism has highly specific criteria, addressing even the outdoorlighting (it can’t produce changes in the habits of local fauna) and the use of native plants inlandscaping, the Green Globe 21, an international program launched in 1994 by the World Travel& Tourism Council, employs standards that focus more on guest education and financial support oforganizations that work to protect biodiversity. The cost structures of certification programs alsovary. While most programs levy a fee for application and evaluation, it can be prohibitively expensive.Nordic Ecolabel charges auditing and assessment fees ranging from $570 to $2,400 (dependingon the country where the property is located) in addition to annual membership dues of 0.3-0.4% ofrevenue.

What are the benefits of Certification?

• A set of criteria to assist operators in planning and developing their ecotourism product• An opportunity for operators to continually improve performance to a standard recognized

as best practice

• A recognized logo for operators to use in their marketing material • A recognized means for properties and travelers to identify genuine ecotourism operators and

properties• A tool to help local communities determine a mix of tourism activities that maximizes benefits

and minimizes negative impacts

• An educational and information tool.

While the Government of India evolves a standard certification program and scale, five componentsare worth noting:

• Voluntary Enrollment: All certification programs are strictly voluntary; i.e., businesses can

decide whether to apply for certification. Most would enroll if they believe that certificationcan bring them market distinction and increased profits. The government can use more“carrots” such as marketing and promotion and “sticks” such as denying contracts inenvironmentally or culturally sensitive areas to uncertified companies to promote certification.

• Logo: All programs award a selective logo, seal or brand designed to be recognizable tostakeholders. Many certification programs give logos for different levels of achievement, fore.g., one to five suns or leaves. One of the more complex logos is that given by ECOTEL,which measures environmental performance in lodging facilities. ECOTEL offers a differentlogo in each of five areas (solid waste management, energy efficiency, etc.) and each logo,in turn, has a three-level scoring system. This allows businesses to display a combination oflogos as they progress through different levels in each of the five areas.

• Complying With / Improving Upon Regulations: Certification programs require that companiescomply with local, national, regional and international regulations. Some performance-basedcertification programs have criteria that require companies to go beyond the regulations toinclude socio-cultural and conservation criteria.

• Assessment and Auditing: These assessments and audits can be first-party (by the certificationcompany itself), by industry associations, or by independent third-party auditors. Third partyauditing is considered the most rigorous and credible because it avoids any conflict ofinterest.

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• Membership and Fees: Many certification programs charge an enrollment fee to those seekingcertification. This is used for administration, advertising and promotion of the logo andcertified companies. Fees are also charged for onsite assessment. Usually there is a slidingscale with larger and more profitable businesses paying more. These fees vary widely andtend to be highest for those using ISO 14001 or other types of environmental managementsystems.

The Sustainability Challenge – An equitable distribution among all stakeholders

While there are quite a few impediments to development of ecotourism in India, the same can beovercome through a judicious and multi-pronged strategy. However, as has been clearly mentionedabove, the sustainability of any ecotourism venture would be critically dependent on the benefit ofthe project to local community.

Low volume / low impact quality tourism strategies rather than mass tourism should be encouraged,and that national parks and protected areas were an important resource in both attracting andmanaging tourism to natural heritage areas. However, there are conflicts between local communitiesand ecotourism projects.

A number of ways to monitor the benefit of ecotourism to the local community can be identified.However, these performance indicators need to be determined and agreed in the design phase ofprogram and be related to clear development objectives. These performance indicators can then beused for monitoring performance against criteria and objectives agreed with local communities andwith property managers. Communities need to identify what needs they have, the ways in whichecotourism can meet those needs and the delivery of those needs then need to be timelines in orderto define evaluation and monitoring criteria.

The collective welfare of the community is an important indicator as it covers both community andindividual benefits from ecotourism. The initial plan should make clear what proportion of income isgoing to individuals, households and to community projects and this should then be monitored.There needs to be explicit agreement about expected benefits and their distribution and the priceswhich small enterprises and community groups will charge for services. The industry is then clearabout the costs of purchasing goods and services from the local community and stability in thosecosts must reflect market forces.

The creation of employment opportunities through tourism is as important a way as the developmentof entrepreneurship for local communities to benefit from tourism to their natural areas. There areemployment opportunities in all aspects of the tourism industry and jobs are welcomed particularlywhere training and skill enhancement is part of the package. Employment opportunities are valuedas well as micro-enterprise development opportunities in guiding, craft production, in the provisionof food and accommodation. There are other benefits that can come from tourism through variousforms of leasehold arrangements, such as sponsored projects in health and education, revenuesharing and levies and also through donations directly from tourists and tour companies to localcommunity projects.

The dependency culture, which can be generated by public sector and NGO involvement, can makeit more difficult to achieve self-reliant sustainability. On the other hand, it is unreasonable to expect

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the local community to carry the risk and responsibility to manage tourism projects with full andequal access to the tourism market as owners and partners. There are many stakeholders and they allneed to be included, and this problematic challenge is exacerbated by the fragmentation of thetourism industry itself.

Land is the contribution that communities can make to joint ventures. Village land can be includedinto larger conservation areas as part of their stake in the protected area. It is important to createand recognize usufruct rights. Co-ordination between government departments is essential if community-public-private sector partnerships are to be successful, as their viability is dependent upon the wholepolicy framework within which they operate and many government departments affect this.

Measures of welfare indicators are diverse. One approach is to measure household income andother community indicators from the demand side. Surveys of tourist expenditure can reveal a greatdeal about community benefits without having to investigate household earnings in rural communities.It is possible to discover from tourists what they have been spending and where, and from thisinformation to make good estimates of the amount of money flowing into local communities fromtourism.

India has got a great potential; it has culture, archaeology, ornaments, wildlife, features, customsand traditions, costumes & cuisine. With the right approach, we can do wonders.

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Financing of Eco tourism projects

Now we come to one of the most critical, but one of the least developed aspects of ecotourism sector– financing of ecotourism projects on a standalone basis.

All the players in the development of ecotourism properties are constrained - government by the lackof managerial capacity; financial intermediaries by a concern for risk, unfamiliarity with the sector,and the exigencies of the money market; private developers by a lack of capital, the absence ofclear title rights to the site, and the need for training in the preparation and presentation of feasibilitystudies; and NGOs by a lack of capital and public support.

Government has traditionally had access to grant and soft-loan funds, which were inaccessible toprivate sector investors. However, very often the government does not have the technical skill orentrepreneurial drive to fully utilize these funds. NGOs, on the other hand, often have the expertiserequired to develop nature and heritage tourism ventures, but lack the funding basis to become fullyestablished. It seems, therefore, that governments and the private sector should consider some formof co-option, thus allowing the country to optimize from benefits of both the sectors – the Public-Private-Partnership of PPP (See Box below). Let us consider the financial position of certain stakeholders.

Government

Government has traditionally been successful in obtaining financing from international assistanceagencies, though such assistance was always to be directed towards a self-sustaining economy.There are usually no a priori restrictions on access to these funds, and the only criterion is thatbeneficiary projects be economically and financially viable. But, a problem with government fundingis that larger development projects tend to receive larger attention, perhaps because they appear tobe more beneficial. But smaller projects often are very important to local economies.

Non-governmental Organizational

A number of NGOs operate ecotourism attractions, for which they receive donor assistance,membership dues and user fees. They tend to have great difficulty with financing because they arereliant on membership fees and do not have access to government funds, and because the purposeof many NGOs is preservation and conservation, rather than profit. The NGO, although receivessome government subsidies, is dependent on user fees at the properties, as well as membershipdues, sales of publications, and grants from donor agencies and the local private sector. Thus, theydo not have surplus funds to invest in further properties.

Private Sector

Privately owned ecotourism sites tend to be dependent on owner equity, gate receipts, and commercialbanks for their funding. Private-sector development projects receive minimal support from governmentsthemselves. They must therefore seek loans. Many areas that have the potential to become major naturalor heritage tourist attractions need substantial amounts of funds for restoration and other works, but privateowners may lack the equity to undertake the required investments. They also have difficulty in demonstratingcash-flows to service debt. In addition, the inability of most of the banks to perceive the risks inherent innatural and historic sites when appraising projects, limits the valuation of collateral.

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Debt-for-nature swaps, which have become popular in parts of Central America and Jamaica, arenot practical in India.

But that brings us to the moot question …..

Is there a funds constraint for ecotourism projects or is it that there are no properly structured projectsin the market for funding?

Our understanding is that there is no major shortage of funding for demonstrably viable ecotourismprojects, nor is it that obtaining financing for such projects is any more difficult than other conventionalprojects. Indeed, failure to obtain financing, in most of the cases, may be attributable to poorlyformulated projects or generalized economic problems. The commercial banking system also doesnot make special provisions for tourism projects. All requests for loans are assessed according totheir financial viability. The banks, like all commercial financial agencies, also require some collateraland owner equity.

However, it is not well informed about the nature and heritage tourism market, and a lack of adequatefeasibility studies, serious sponsors, appropriate security, or confirmed leases/concessions from thegovernment, has kept it from further involvement in such ventures.

It needs to be emphasized that self-sufficiency is an essential component of sustainability. One specialistin the ecotourism industry even goes so far as to define the eco prefix in the word ecotourism asbelonging to economic rather than ecology. If an organization or business is unable to operateprofitably, it will not long survive and will have little impact on preserving the world’s natural andcultural resources.

Of course, in order to operate profitably, a project developer of ecotourism project must avoid ahighly leveraged financial structure. For ecotourism to be sustainable, it must be accorded adequatefinancing alternatives. This may require some innovation and alternative remedies, but it is achievable.We have done an analysis to evolve a financial structure and model which clearly shows that givenproper attention to structure and risk parceling, showcasing viable projects is not an issue at all. Theresults of the same are shown later in this section and detailed calculations have bee provided in theannexure.

Of course, the allocations should not load the costs of needed infrastructure on to the ecotourismproject. This could be built via the EDF spelt out earlier.

And another important point. Because some lenders may not have much experience with evaluatingecotourism projects, it is incumbent upon the developer to present the most complete project proposalpossible. This should include a market assessment with projected occupancy rates, and agreementswith tour operators to include the project in package promotions. It should include an environmentalimpact statement to assure lenders that the attraction - which, after all, is the project’s principal asset- will not be damaged.

International Assistance Agencies

International assistance agencies can provide financial and technical assistance to cover a widerange of needs - from support for research initiatives to feasibility studies and assistance with the

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provision of support infrastructure. The main criteria are that the projects be sustainable and thatthey contribute to job creation and foreign exchange earning. The advantage of these funds are thatthey are either in the form of grants or in the form of soft loans that can match the tenors and ratesthat suit the project as well.

CASE STUDY – Transaction Structure and Financial Viability of an Eco Tourism Venture.

What is the project about?

It is about a village setting on top of a ridge in the Kumaon region, and with a magnificent 175-degree view of the Himalayas. It is situated at a height of 2000 meters, and hosts an orchard ofapricot, apple, plum and peach while oak, rhododendron and pine jungle surround it from allaround. The venture is spread over a 20 acre plot of land, leased from the local community, andinvolves itself with organic farming, growing a variety of vegetables and pulses with plans to introducecultivation of medicinal and aromatic plants. Nearest hill town is 8 km away.

What activities does it offer?

As mentioned, its 20 acres of land with forest and villages all around,exploring these could be activities in themselves. For others, it offersadventure activities like rock climbing, rappelling and simulated rivercrossing. Expert guidance is provided in these activities and safetylevels are ensured for the participants. The site offers jungle walks,to simply explore a trail, or maybe feel the jungle, or to climb on topof a cliff. Bird watching can be done and the children can collect

dry leaves for their scrap books. Villagewalks exposes city dwellers to the village life, allowing one to see thelife of a villager from close quarters, and villagers are also involvedin local lunches provided one is ready to accommodate the localtaste to one’s palettes. Religious treks to nearby 10th century templescan be done via a 2 hours trek. For real farm enthusiasts, can try outa bit of farming.

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Key Assumptions

Parameter Value RemarksProject cost 62.5 Rs. millionLand 0.5 Rs. Million p.a. lease rentalsConstruction Period 12 monthsNumber of huts 50Average occupancy 30% p.a.Tariff rates 2500 Rs. Per hut per nightEscalation in rates 10% p.a.Revenue from sale of souvenirs 5% of room spendAdministrative expenses 10.00% of revenueFinancing structureDebt 50%Equity 50%Debt tenor 7 yearsMoratorium 3 yearsRate of Interest 10% p.a.

Based on the above assumptions and detailed financial modeling, a snapshot of the cashflow andprofit numbers for the property are arrived as under:

Year 1 5 10 15 (Rs. Million)

Room Revenue 13.7 20.0 32.3 52.0Total revenue 14.4 21.0 33.9 54.6Total Operating Expenses 3.4 4.0 5.0 6.2

Depreciation 3.1 3.1 3.1 3.1Interest 1.6 2.0 0.0 0.0

PBT 6.3 12.0 25.8 45.3Taxes 0 0 9.03 15.85PAT 6.3 12.0 16.8 29.4

Gross cash flows 9.4 15.1 19.9 32.6Repayments 0 -7.81 0 0Net cashflows 9.44 7.29 19.90 32.55

IRR 16.87%ADSCR 1.71

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Detailed workings for the same have been provided at Annexure.

As can be seen, the project generates an IRR in excess of 16% over cashflows assessed over a 15year period at a comfortable DSCR. As can be seen, the financials are sensitive to the following:

• Transaction structure – The debt terms are indicated in assumptions; however, the lenderswould insist on cashflow trapping mechanisms to ensure that the project cashflows are properlyutilized and monitored. The lenders might also emphasize on a down side support from thepromoters, in case of unproven track record; such a support to taper off and disappear onsatisfactory achievement of pre-identified milestones such as DSCR and Interest Coverageratios, achievement of estimated traffic and revenue numbers etc.

• Sensitivity to terms of debt - The project is sensitive to debt tenors. In case the project costingis high, or the sustainable level of tariffs are lower than indicated, then debt tenors wouldneed to be enhanced to make the projects bankable. A series of sensitivity on key debtvariables has been done below to estimate the variability of the project returns with changesin those key assumptions.

• Financial structuring - A rigorous and detailed financial engineering is mandatory for theproject to get commercial bank financing; any inflow from a multilateral and/ or governmentagency on softer terms can reduce the viability requirements of the project to a limitedextent.

• Project selection - Not all projects are amenable to commercial financing; nor are all projectsrequired to go through the rigorous process of commercial project financing. Showcasetransactions need to be structured that demonstrate the appetite of the sector and financingagencies to work on such projects.

• Support infrastructure - The project cost does not include the cost of financing the supportinginfrastructure such as approach roads from highways to the village / ecotourism property,water and sanitation services and telecommunication facilities. It would be inequitable incase the entire cost of such facilities is loaded onto the project. The utility providing suchservice can charge for the services on “pay-per-use” or on a minimum monthly charge basis.The costs can be apportioned over a longer tenure, since the project would be sensitive toupfront costs.

• Other revenue sources - The ecotourism property would have certain other revenues such asguide fees, fee for activities such as adventure tourism and nature tourism that would augmentthe revenue stream of the project. Such revenues have not been taken into account forcalculation purposes.

Results of sensitivity analysis

As has been mentioned above, the project financial modeling has been done based on pre-setassumptions regarding key numbers such as project cost, occupancy levels, room tariffs etc. Theseassumptions are the best estimates at the moment; but might vary actually on account of change in

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macroeconomic parameters and underlying project structures. To understand and analyze therobustness of the project structure to changes in key underlying assumptions, we have carried out asensitivity analysis on the following project parameters through scenario building:

Scenario ValueBase Case -Shorter debt 5 yearsHigher Interest Rate 12% p.a.Lower occupancy 25%Higher Leverage 70% Debt, 30% Equity

The following table shows the values of IRR and DSCR for each of the above scenario.

Scenario Value IRR DSCRBase Case - 16.87% 1.71Shorter debt 5 years 16.51% 2.02Higher Interest Rate 12% p.a. 16.43% 1.56Lower occupancy 25% 12.68% 1.34Higher Leverage 70% Debt, 30% Equity 14.62% 1.14

It clearly identifies the importance of generating high occupancy levels at the property and customersthat are willing to pay prices supporting ecotourism property. In the event of a robust revenuestream, the project can sustain to an extent the changes in financial leverage and debt terms.

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Public-Private-Partnership in Eco andRural Tourism Projects

The success of a PPP platform in eco and rural tourism depends largely on the understanding of therisks and its proper parcelling among the various stakeholders concerned. The primary task is todevelop structural frameworks domiciling commercially viable stand-alone attractions from tourismperspective vis-à-vis pooling the potential locations into an attractive package to induct privatesector efficiencies and resources for the same. See the following Box and Annexure for more detailson the applicability of a PPP model to eco and rural tourism.

Public Private Partnership in developing eco andrural tourism infrastructure

Identifying potential projects under PPP

This should be with a view on project’s capability of viability on a commercial basis.

Project structuring

This involves comprehensive analyses of risks & their allocation resulting in development of proper

contractual framework to facilitate induction of private operator. Subsequent to this is the evaluation of

the project from a financial perspective and review of the draft legal documents that would be issued as

a part of the bidding process.

Bid Process Management

A transparent process needs to be undertaken in the selection of the operator for developing the identified

tourism destination in the state.

Financial Close for the Project

Financial closure is the stage in the project development cycle when the principal stakeholders (sponsors,

government, lenders) reach a formal agreement on the fundamental business structure of the project and

the underlying terms and conditions of the project’s financing plan.

Project Implementation Phase.

It is of utmost importance that an independent auditor monitors the progress of the operator as per

contracts entered into at the time of award. This would result in successful culmination of project development

exercise and result in ensuring sustainability of the project: the basis for undertaking Public Private

Partnership(s).

Project Monitoring and Audit

Ensuring the operator conforms to the agreements entered into at the time of award of contract. Defining

the roles and responsibilities of an independent engineer/auditor.

Details of the PPP process and the timelines have been provided at Annexure.

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Conclusion

India has very large areas of diverse natural habitat with attractive landscapes and flora, largepopulations of charismatic fauna. These natural heritage assets are significant to the development ofecotourism in India. India also has unique and diverse cultures, the everyday lives of people, theways in which they interact with their environments and the cultures which they create are ofconsiderable interest to tourists. The rich and diverse culture of India has long been neglected in theconstruction of the country’s tourism. The diverse cultural heritage of India - the crafts, literature,art, dance and music - are as unique to India as its wildlife, and is a considerable asset in thedevelopment of forms of eco and rural tourism which celebrate the country’s biological andcultural diversity.

The potential of eco and rural tourism to benefit local communities and conservation is beingrecognized in India and there is enthusiasm for it. A host of examples exist to prove this trend.India’s natural heritage attracts relatively wealthy international and domestic consumers to marginaland poor rural areas. This provides opportunities to use tourism for local economic development,and to develop clusters of products and services in communities which can be marketed to international,regional and domestic tourists.

If India has to realize the immense potential in eco and rural tourism, it has to work effectivelytowards creating a support and common infrastructure such as rural roads, airports, water andsewerage systems and hygiene conditions conducive to tourists. In addition, participation of localcommunity is a must for the ventures to be sustainable and make a difference to the regionaldevelopment. The Government of India can create a facilitative environment through attractive fiscalbenefits, and developing an Ecotourism Development Fund.

Finance is a big determining factor in effective development of this sector. We believe that thereare select projects within the eco and rural tourism universe that are commercially viable;although transaction structuring and financial engineering are desirable to have good showcaseprojects.

Taking eco and rural tourism to the next level would involve a continued effort to bring the principlesand practices associated with eco and rural tourism into the global tourism industry. There is a needto “paint” the principles of ecotourism across as broad a canvass of the tourism industry as possible.In so doing, and in supporting the growing movement for sustainable tourism, advocates of ecotourismas both a travel philosophy and as a set of principles, can continueto influence one of India’s largest industries to become a catalystfor environmental responsibility, cross-cultural awareness and localeconomic benefit.

As has been said - “Take only photographs, leave only footprints”- most aptly describes eco and rural tourism.

And as Pt. Jawaharlal Nehru said “Welcome a visitor and sendback a friend”.

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ANNEXURES

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Annexure I : Project Development Cycle and the Processes involvedin Project Structuring.

The Process : The primary objective of project development is to ensure that the proposed projectis properly positioned for commercial implementation, i.e. the project is sufficiently defined to providea basis for awarding clearances; to provide commercial investors a basis for assessing the viabilityand hence the attractiveness of investing in the project; and to provide a sufficiently rigorous andtransparent basis to select an operator.Essentially, the output of the project development exercise is the project documentation that could beused to implement the project on a commercial basis. On completion of such project documentation,it would be possible to:

• Select a suitable private operator for the project• Obtain all statutory and other government clearances• Raise commercial resources

Key Parameters : To achieve the above, the following key issues need to be addressed for eachproject:

Project Concept and its Integration with Sector Plans : The purpose of an infrastructurefacility is to provide a public good. Thus integration of the facility with the overall plan for the regionand sector assumes critical importance. The final project concept that is evaluated for its commercialviability must perforce be one that is also optimal from a societal point of view. A number of toolsneed to be adopted for this purpose including the use of strategic options studies, sector plans,economic analysis, etc.

Project Design and Costing : To ensure that a rational basis is established for the evaluation ofthe final cost estimates of the project and that the project meets acceptable service levels, there is aneed to undertake least cost and optimal design exercises based on field investigations and surveys.The establishment of an optimal design ensuring least cost constitutes a key concern of public agenciesand a key requirement of the private sector.

Level of User Charges : There is a need to demonstrate the level of user charges as a function ofthe benefits derived from the project. Naturally, there is a tendency amongst public agencies to viewuser charges from anon-commercial perspective. Thus, during the project development phase, it becomes necessary toestablish the basis for the fixation of user charges, the level of user charges and the acceptance ofthese charges amongst the target user group.

Rates of Return : From a public agency perspective, a minimum rate of return would be desirable,while for commercial investors the opposite would apply. The balancing of such interests, boththrough transparent procurement and through the implementation of appropriate contractual structuresand financial planning becomes a critical requirement of the project development phase.

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Contractual Documentation & Allocation of Project Risk : The ability of projects to attractcommercial funding is predicated on robust contractual documentation and appropriate risk allocation.The project will require to demonstrate its efficacy in this regard

Procurement : Public agencies require that goods and services are procured in a transparentmanner. Most funding agencies also stipulate such covenants. The process of procurement for theproject would thus need to be documented and the explicit approval of the concerned agenciesobtained.

Environmental and Social Issues : The project must demonstrate environmental and socialintegrity and would need to incorporate the recommendations arising from the detailed environmentaland social studies undertaken.

Documentation : In order to address each of the aforementioned issues, it is necessary to preparespecific documentation. Typically, these documents include:

Project Development Cycle : A project development process would typically consist of 7 specificmilestones :

I. Sourcing : This activity would include but not be limited to identifying or sourcing projectsfalling within the Focus Sector.

Table 1 : Project Development Documentation

Output

Detailed Feasibility and Investment BankingReport

Environmental and Social Assessment Report

Risk Management Plan

Contractual Framework Documentation

Detailed Process of Implementation

Content

To assess feasibility and recommend a suitablefinancing plan for the project

To assess the environmental and social impactof the project and to incorporate appropriatemitigation mechanisms

To ensure an equitable project risk allocation andreflect the differing perspectives of the Consortiumincluding government, lenders, contractors, etc

To develop the contractual framework andprovide draft agreements to be entered into bythe principal stakeholders to the project

To provide a blue print for achieving technicalclose including selection and award of contractsto successful bidders

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II. Screening : The project would be screened from techno-legal-commercial and environmentaland social perspectives, so as to establish the initial feasibility of the project and identifycritical issues.

III. Scoping : During this phase, public opinion would be sought to build consensus on scopeand extent of studies required to be undertaken during the project development phase.

IV. Finalization of Terms of Reference (TOR) : A TOR for the preparation of projectdocumentation would be outlined, in joint consultation with the local government body aswell as experts.

V. Appointment of Consultants : At this stage, consultants with multi-disciplinary expertisewould be appointed through a competitive bidding process.

VI. Preparation of Project Documentation : This would be the most important andsubstantive stage of the project. The key objective would be to prepare a well researchedand documented report with due consideration to state government opinion and sensitivities.The process covers a number of activities including field surveys, technical studies,environmental studies, market demand studies, economic and financial analysis, resourcemobilization plan, development of contractual framework, risk analysis and allocation.

VII. Project Evaluation : At this stage, the project documentation would be reviewed toensure its comprehensiveness and feasibility of the action plan. Based on the above, allstatutory clearances and concurrence from funding agencies and government would alsoneed to be obtained.

Thus Project Development would require that the project be taken to a “bankable” stage, wherein,interested parties can be inducted to participate in these projects. This would require the inputs ofspecialized consultants on a host of commercial, environmental and technical issues, as well as aSponsor to manage the process and bring together a group of like-minded investors. This would leadto the creation of an investment-banking document to be presented to international consortia willingto implement the project, and financiers including both lenders and equity investors.

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Promotescompetition inarea ofcontract

If contractfails, risk isrelatively low

Contracts ofshort duration– if problemswith contract– can easilyre-tender

Easy/simplecontractualform

Potentialstarting pointfor PSP

Can increaseutility’s focuson corebusiness

Potential forefficiencygains in thearea coveredby contract

Can improveservice

Reduced risksto governmentand contractor

Potential firststep toconcessioncontract

Potential forsettingperformancestandards (withincentives toachievestandards)

Scope tointroduceprivate sectormanagementskills

Limitedcommercialrisks

Can revert toin-housemanagement orcontract, maybe re-tenderedif problemsarise

Can increaseefficiency ofassetmanagementincreasesprofits

Reducedgovernmentrisk of notcollectingadequate tariffs

Proportion ofmanagementresponsibilityandcommercial risktransferred

Incentives forcontractor tominimize costs,provide reliableservices andmaximizerevenuecollection

Takes overmanagementof operationsfromgovernment

Relievesgovernment ofneed tofinanceinvestments

Fullresponsibilityfor operations,capital raisingand investmentgoes to privatesector

Potentiallylargeimprovementsin operatingefficiency

Full privatesectorincentivesacross utility

Attractive toprivatefinancialinstitutions

A fast optionfor improvinginfrastructure

Fullresponsibilityfor operations,capital raisingand investmentgoes to privatesector

Potentiallylargeimprovementsin operatingefficiency ofbulk assets

Full privatesectorincentives insupply side

Attractive toprivatefinancialinstitutions

Mobilizeprivate financefor newinvestments

Addressesfundingshortfall

A fast optionfor improvinginfrastructure

Fullresponsibilityfor operations,capital raisingand investmentgoes to privatesector

Potentiallylargeimprovementsin operatingefficiency ofutility

Full privatesectorincentives insupply side

Attractive toprivatefinancialinstitutions

Mobilizeprivate financefor newinvestments

Addresses anyfundingshortfall.Could besuccessfulwhere there isgood trackrecord ofprivate sectorownership

ServiceContracts

ManagementContracts

Lease Concession BOT/BOOT/ROT

Divestiture

Potential Benefits of Various PPP Options

45

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46

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References

Ecotourism & Sustainable Tourism Certification Workshop. Minutes and MohonkAgreement; Mohonk Mountain House in New Paltz, New York State, November 17-19, 2000. Honey, Martha. “Setting Standards: Certification Programs in the Tourism Industry,”The International Ecotourism Society Newsletter, First and Second Quarters 2001. Rainforest Alliance. Feasibility Study, Organizational Blueprint and Implementation Planfor a Global Sustainable Tourism Stewardship Council (STSC): An Accreditation Bodyfor Sustainable Tourism Certifiers (Project summary). July 2001. Synergy. Tourism Certification: An Analysis of Green Globe 21 and other TourismCertification Programmes. A report prepared for WWF-UK, August 2000. The International Ecotourism Society. Ecotourism Guidelines for Nature Tour Operators,Published by TIES, 1993 United Nations Environmental Programme Department of Technology, Industry andthe Environment (UNEPTIE)http://www.uneptie.org/pc/tourism/ecotourism/home.htm#segment World Travel and Tourism Council; http://www.wttc.org

India: Travel & Tourism – Forging Ahead; The 2004 Travel and Tourism Economic Research;World Travel and Tourism Council

The Himalayan Village; http://www.himalayanvillage.com/; The Himalayan Village, Sonapani,Uttaranchal

Ministry of Tourism, Government of India; http://www.tourisminindia.com/

Ecotourism Australia ; Eco cer t i f icat ion Program; ht tp://www.ecotourism.org.au/eco_certification.asp

Background note for the International Conference and Exhibition on Rural Tourismin India; September 8-12, 2001, Udaipur; Organized by FICCI in association with UCCI.

47

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Federation of Indian Chambers of Commerce and Industry

FICCI, founded in 1927 under the guidance of Mahatma Gandhi, is the apex business organizationof India. In the vanguard of nation building, moving ahead to integrate Indian economy with the global mainstream,FICCI has evolved as a true partner in progress with the Government. FICCI has been playing a pivotal role in theformulation of major economic policies in India, and has been working extensively towards creating and enrichingindustry’s awareness on environment ands sustainability issues and facilitating industry’s response and initiatives inthis direction. Internationally, FICCI operates through Joint Business Councils (JBCs) with 70 countries and severalother Commercial Alliances and MOU partners. Today, with a membership of over 5000 chambers of commerce,trade associations and industrial bodies spread across the country and the globe, it speaks directly and indirectlyfor over 250,000 businesses small, medium and large employing around 20 million people. FICCI truly representsthe Indian industry and its interlocutor with the international business.

FICCI’s Expert Committees and Task Forces, headed by senior industrialists with proven track record include:Agriculture, Banking & Finance, Consumer Durables, Environment and Climate Change, Education, Energy,Entertainment, Foreign Trade, Industry, Information Technology, Internal Trade, Infrastructure, Telecom, Insurance,taxation & Corporate Laws etc.

FICCI focuses on environmental issues of local and global significance for Indian industry. Its activities includeregular policy interface with the government, regional and unit level training programmes, technology diagnosticstudies facilitating technology demonstration projects, information dissemination on environmental issues, andprogrammes aimed at generating awareness, knowledge and stimulating new initiatives in environment. FICCI isalso working proactively in the area of tourism, creating awareness on eco and rural tourism and its positivecontribution to regional socio-economic development, and familiarizing the stakeholders with the core issues andchallenges confronting them. FICCI’s objective is to enable the corporate sector to become conscious of the tremendousopportunity in this segment and the financial viability of such projects. For more details, please visit www.ficci.com.

YES Bank Ltd.

YES Bank is an outcome of the professional commitment of its Indian promoters, Mr.Ashok Kapur and Mr. Rana Kapoor, (previously partners in Rabo India Finance) to establish a high quality, technologydriven, state-of-the-art private Indian Bank catering to “EMERGING INDIA”. The Bank is financially supported byRabobank, Nederland (20% minority ownership), and three other high quality institutional private equity investors- CVC-Citigroup-New York, AIF Capital - Hong Kong and ChrysCapital-San Francisco (25% collective ownership).

YES Bank would, in a staggered manner, target wholesale banking, financial markets, corporate and transactionalbanking, retail and private banking business lines across the country. YES Bank aspires to be one of the leadingfinancial players amongst the private Indian banks, with a focussed approach to be a pivotal banking player inseveral knowledge-based industry segments namely Food & Agribusiness, Life Sciences, Telecommunications andInfrastructure Development in India, amongst others. In the initial stages, the Bank intends to focus on Corporate andWholesale customers by leveraging its experience and domain knowledge in its target sectors, YES Bank will offerinnovative, sector-specific solutions to its target customers in addition to catering to various other growth andtraditional sectors.

YES Bank considers infrastructure to be of strategic importance to its business, since the provision of quality infrastructurewould determine the competitiveness of the Indian economy in the global business arena. YES Bank also believesthat infrastructure development has to be sustainable if it has to be enduring and contribute positively to the regionaldevelopment. Using its knowledge platform in conjunction with superior structuring skills, YES Bank endeavours towork in energy, transportation & logistics, water, environment, education and hospitality sectors.

The YES Bank Infrastructure Team believes in playing a pivotal role in developing Private Public Partnership modelwhich aims at leveraging private capital for public projects thus bringing in the commercial benefits and privateenterprise into the public domain.

48