By Matthias Williams
NEW DELHI, Nov 24 (Reuters) - "Incredible India" is what the country's energetic promotional campaign calls it. But behind the glossy brochures is an increasingly hard fight to entice foreign tourists.
The worst financial crisis in 80 years, high oil prices and a slew of militant attacks has hit an industry that has basked in double-digit growth numbers of both domestic and foreign tourists in recent years, according to data from the Ministry of Tourism.
October saw an increase of just 1.8 percent in the number of foreign tourist arrivals compared to the same time in 2007, prompting the Indian government to ask hotels to slash their prices by 10 to 15 percent in the hope of keeping demand high.
"We are seeing the early stages of a slackening of the market," Madhavan Menon, the managing director of Thomas Cook India Ltd, told Reuters, adding that: "2009 is going to be a difficult year."
A slump risks undermining India's enormous growth potential in the tourism sector, which the U.N.'s World Tourism Organisation (UNWTO) said has also been let down in the past by a lack of adequate accommodation and poor infrastructure.
Despite its vast size, diversity, and array of historical monuments, India still ranks at no. 42 in the world's holiday destinations of choice -- below much smaller countries like Belgium (33rd) and Hungary (26nd), a UNWTO report said.
Even so, India's tourism industry is thought to contribute around 6 percent of the country's GDP and give employment to more than 40 million people.
As the tourist season kicks off in the winter months, both domestic and foreign travellers are still flocking to the famed Taj Mahal, with over 300,000 visiting the 17th century mausoleum in October alone.
But because many of the 5 million foreign tourists who came to India in 2007 were from the United States and Britain -- among the hardest-hit countries in the global economic slowdown -- some travel agents and hoteliers are nervous.
BETTING ON THE RUSSIANS
Even though tourist numbers are officially growing, operators say the data could be misleading, as foreign tourists and corporations made advanced bookings months before the financial crisis took hold.
"As compared to last year, we have received far fewer queries for the next tourist season," Mahatam Singh of Touraids said.
The luxurious Raj Palace hotel in the desert state of Rajasthan says it is reaching out to the super-rich from Russia and the Middle East to make up for a "major downfall" in British and U.S. visitors.
Middle East sheikhs and princes book up entire hotels in the pink walled city of Jaipur even if they do not use all the rooms, says Ankur Rara, the general manager of the Raj Palace hotel.
"For them money is not a problem." India's tourism ministry says domestic demand will continue to grow at a high level, despite analysts' predictions economic growth could slow to below 7 percent in the year to March 2009 from 9 percent or higher in the past three years.
Although crude oil prices have fallen to around $50 a barrel, government-set retail fuel prices remain uncomfortably high, and tour operators say this and high air fares will take a toll on domestic tourism, which accounts for the vast majority of visits.
A general economic slowdown may be affecting all sectors of Indian tourism.
Rinku Tripathi, a farmer from the state of Uttar Pradesh, could just about afford to take his family on a $100 holiday to see the historic Mughal monuments in India's capital, but for others in his village it has become an unaffordable luxury.
"Everybody wants to come to Delhi. But because of their financial position they can't come right now."
MILITANT ATTACKS
A string of militant attacks on Indian cities in 2008 scared some domestic and foreign visitors away from traditional hotspots, with the United States and Britain advising their citizens to be vigilant and avoid certain cities altogether.
Sheela, a woman who did not want to give her second name, earns a living by painting elaborate henna patterns onto the palms of visitors at a park by New Delhi's India Gate monument.
After deadly bomb blasts rocked the capital in September, she only has a quarter of the customers compared to this time last year, and can only charge half the amount -- $5 per tattoo.
"Before the blasts, both sides of the park were completely full."
That said, the effects of security fears tend to be localised and short-lived, because "the world has got used to terrorist attacks", according to Menon of Thomas Cook India Ltd.
But months of anti-India demonstrations and violent clashes between Indian troops and Muslim protesters across the picturesque state of Kashmir have brought tourism, one of the state's biggest industries, to a standstill.
Authorities say hotel occupancy has come down from 100 percent in June to almost zero in October across the restive region, where about 30 percent of its 10 million people depend directly or indirectly on tourism.
"Tourism in Kashmir has vanished again," said Azeem Tuman, the president of the Kashmir Houseboat Owners Association.
However, the setbacks to India's holiday industry are "not alarming", says Devesh Chaturvedi, the director of India's Ministry of Tourism, adding that "the tourists will still come but may reduce their spending".
The ministry has set itself a target of doubling the number of foreign tourist arrivals to 10 million per year by 2010, when India hosts the Commonwealth Games.
But with officials worried Commonwealth Games infrastructure and accommodation may not be ready on time, the estimates of a doubling of tourism in two years may be rather optimistic. (Additional reporting by Sheikh Mushtaq and Sharat Pradhan; Editing by Alistair Scrutton and Jerry Norton)