Inside India newsletter: Iran war disruptions, Modi's appeal to boost India's hospitality sector

Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of "Inside India" — your one-stop destination for stories and developments from the world's fastest-growing large economy.

The conflict in the Middle East has affected India's economy, with Prime Minister Narendra Modi urging citizens to curb overseas travel, save fuel — and even pause buying gold. This bleak-sounding appeal is proving to be a boon for India's domestic travel and tourism industry.

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The conflict in the Middle East is causing India acute economic pain, with its currency weakening, the import bill rising, and mounting concerns over a slowdown in growth.

But there is a silver lining: the domestic tourism industry is showing signs of a boom.

Earlier this month, Indian Prime Minister Narendra Modi urged citizens to reduce overseas travel in an attempt to conserve India's foreign exchange reserves, under strain from a rising import bill amid a surge in global energy prices.

The Indian rupee is among the worst-performing currencies in Asia, falling over 6% year to date against the greenback, LSEG data showed. This weakening of currency, combined with inflated jet fuel prices, has also led to one of the country's major airlines, Air India, to cancel more than a quarter of its international flights between June and August.

All this coincides with the peak season for Indian tourists travelling abroad, experts told CNBC, adding that as schools remain shut for more than a month, it is easier for families to take longer holidays to escape the Indian summer heat.

Indian Hotels Company, the country's largest hospitality group and parent of luxury chain Taj Hotels, told CNBC's "Inside India" that Modi's exhortation will "benefit the domestic tourism industry."

Indian travelers have already started choosing local destinations, industry leaders and sector experts told CNBC.

"Domestic travel has gained prominence, with 42% of travelers opting to explore their own countries. This trend, [is] notably observed in India, China, and the United States," according to a report by global travel insurance major Allianz Partners earlier this month.

That trend might reflect a "preference for cost-effective travel options while enjoying familiar landscapes and supporting local tourism industries," the report, based on a survey conducted by Ipsos, said.

Several hospitality operators in India confirmed the trend and are reporting sharp improvement in occupancies and room prices from May onwards.

Rajeev Menon, president of APAC ex-China at Marriott International, told CNBC's "Squawk Box Asia" that revenue per available room in May was "back to double-digit numbers," and the "pace remains pretty strong," going in the months ahead.

The hospitality chain's revenue per available room had dropped in March, dashing expectations of double-digit growth, due to the conflict in the Middle East.

Given the challenges due to the Middle East conflict, "I think what is playing out is people have pivoted and shifted their plans to stay within Asia and [are] trying to avoid going too far away," Menon said.

In 2025, more than 14 million Indians took leisure trips abroad, according to government data. A significant share of that will shift to local tourism as the disruptions from the war in Iran persist, experts said.

Over the past few weeks, travelers who might have otherwise opted for overseas summer holidays have been choosing to explore destinations within India, said Devendra Parulekar, founder of SaffronStays.

SaffronStays, a popular Indian premium holiday property rental platform, told CNBC that its bookings for May were up by nearly 40%, while forward bookings for June are almost 50% higher than a year earlier.

The firm is seeing increased demand for its luxury properties near the Himalayan foothills as travelers find it difficult to escape to Europe to beat the heat of the scorching Indian summer.

Indian Hotels Company is particularly eyeing opportunities arising from a shift in destination weddings from foreign locations to India.

A study by industry body, the Confederation of All India Traders estimates that weddings generated business worth 6.5 trillion rupees (nearly $68 billion) during the peak season from November to December 2025.

Wedding celebrations could become "a much bigger business," with the shift to domestic locations, said Puneet Chhatwal, CEO at Indian Hotels Company.

That would amplify the demand for hotels, which is already outpacing supply, he said, adding that the Indian hotel chain expects room rates to "increase anywhere between eight to 12% at least."

The World Travel and Tourism Council has been very bullish on the growing outbound travel from India and predicts that the opportunity could be as big as China over the next decade. But until the Iran war-led disruptions continue, the wanderlust of Indian travelers is unlikely to cross borders.

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