As the government readies the Union Budget for February 1, India’s travel and tourism industry is converging around a clear set of expectations: faster connectivity build-out, rationalisation of taxes across transport modes, and policy recognition of hospitality as core economic infrastructure rather than discretionary spending.

The timing matters. Domestic travel demand has broadened sharply over the past year, cutting across religious tourism, leisure, weddings, business travel and medical tourism, while Tier II and Tier III cities are emerging as the next growth centres. Industry leaders say Budget 2026 will need to address capacity constraints and cost pressures if this momentum is to be sustained.

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According to the Economic Survey 2026, overall domestic visits rose about 17.5% in 2024 over the previous year, and by nearly 52.7% during January–September 2025 compared with the corresponding period last year. “International Tourist Arrivals (ITAs), including foreign tourist arrivals (FTAs) and arrivals of non-resident Indians (NRIs), rose to 20.57 million, marking an increase of 8.9% over 2023, and 14.8% above pre-pandemic levels (2019)”.

Connectivity emerges as the central ask

Across aviation, rail and road transport, connectivity remains the most consistent theme in pre-Budget representations.

Mahesh Iyer, managing director and CEO of Thomas Cook (India), said the sector is looking for continued policy focus on air and rail connectivity, particularly beyond large cities. Faster implementation of the UDAN regional connectivity scheme and sustained airport capacity expansion in smaller cities are key priorities, he said, alongside budgetary support for rail infrastructure and last-mile connectivity.

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A coordinated approach is especially critical for tourism circuits under Swadesh Darshan 2.0 and the PRASHAD pilgrimage scheme, Iyer added, as emerging leisure, business and spiritual destinations see rising footfall.

Data from travel-tech platform ixigo underlines the scale of demand. Domestic air passenger traffic crossed 15 crore during January–November 2025, growing over 4% year-on-year, according to the company. Group CEO Aloke Bajpai said sustained policy focus over the past decade has widened access to flying, but operational bottlenecks remain.

Several regional airports revived in recent years continue to see limited or no flight operations due to commercial and infrastructure challenges, Bajpai said, pointing to the need for enhanced allocations to modernise terminals, expand runways and ease congestion at high-traffic airports.

Railways and bus transport also feature prominently in Budget expectations. ixigo flagged the need for investment to support plans to double capacity at 48 railway stations by 2030, while bus operators are seeking parity in GST treatment for non-AC tickets booked online versus offline.

Tax rationalisation and cost pressures

Alongside connectivity, taxation is the second major pressure point for the sector.

High aviation turbine fuel (ATF) costs remain a concern for airlines and aggregators alike. While average ATF prices fell year-on-year in FY25, fuel still accounts for 30–40% of airline operating costs. Bringing ATF under the GST framework would improve cost efficiency and price stability, Bajpai said.

Vishal Suri, managing director and CEO of SOTC Travel, echoed the call for a review of ATF taxation and continued public investment in rail modernisation and integrated transport infrastructure, particularly on high-volume domestic and pilgrimage routes.

The hospitality sector, meanwhile, is seeking broader GST rationalisation and restoration of input tax credit. Nikhil Sharma, managing director and COO for South Asia at Radisson Hotel Group, said hotels should be viewed as productive economic infrastructure given their role in employment generation, MSME linkages and destination-led growth in smaller markets.

Granting infrastructure status to hospitality would unlock long-term financing and accelerate quality development beyond metros, Sharma said.

Spiritual tourism, workforce issues gain prominence

Spiritual tourism has emerged as a powerful driver of domestic travel, with platforms reporting sharp spikes in demand around major religious events. ixigo highlighted a surge in travel to Prayagraj during the Maha Kumbh, driven in part by Gen Z travellers seeking purpose-led experiences. Industry players are urging continued Budget support for pilgrimage corridors through improved connectivity and infrastructure.

Workforce-related tax issues are also back on the agenda. Both SOTC and ixigo flagged the need to simplify ESOP taxation, particularly deferring tax liability from the time of exercise to the sale of shares, to support talent retention across travel, hospitality and allied tech platforms.

According to Ministry of Tourism estimates, travel and tourism contributed 5.22% to GDP in FY24, nearing pre-pandemic levels, while supporting an estimated 8.46 crore direct and indirect jobs, or around 13.3% of total employment. Hence, put together, infrastructure capacity, cost structures and policy alignment will determine whether India’s travel and tourism growth can scale sustainably in the years ahead and sustain the momentum.