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India's new visa rules a 'game changer' for tourism

The loosening of India's stringent visa rules is expected to unleash the huge potential of the country's vibrant tourism industry, which currently welcomes far fewer visitors than many of its Asian neighbors.

India's government last week decided to extend its visa-on-arrival scheme to 180 countries worldwide from just 11 countries previously in a bid to boost tourist arrivals in the country.

"The new visa-on-arrival rules have the potential to be a significant game changer for India's tourism industry by sharply reducing regulatory barriers to visits by foreign nationals from almost all countries worldwide," said Rajiv Biswas, chief economist, Asia-Pacific at IHS Global Insight wrote in a note on Thursday.

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"One of the most significant advantages India can reap from these regulatory changes is to tap the large pool of Indian diaspora who are foreign nationals and were subject to cumbersome visa procedures prior to the new regulations," he added.

Mumbai airport
Christer Fredriksson | Lonely Planet Images | Getty Images
Mumbai airport

The Indian diaspora comprises around 25 million people, according to the Indian Ministry of Overseas Indian Affairs, many of whom do not have an Indian nationality, particularly in OECD countries. This provides a large pool of potential tourists who have ties to India and also the financial means to travel frequently, Biswas said.

In the U.S., for example, there were 1.15 million Indian-Americans holding U.S. citizenship in the 2010 Census, with a median annual household income of $88,000, according to IHS.

At the moment, domestic tourists are a key driver of the industry, accounting for 82 percent of the country's overall tourism revenue.

Safety-related concerns have been a key setback for the country's tourism sector, with cases of sexual harassment gaining significant coverage in international media over the past two years.

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International tourist arrivals were estimated at just 6.65 million in the 2012-2013 fiscal year – around four times less than the 26 million foreign visitors traveling to both Thailand and Malaysia in 2013.

With India's tourism industry contributing approximately 3.7 percent to the country's gross domestic product (GDP) and accounting for 4.4 percent of employment, according to IHS, a surge in tourist arrivals would provide a much needed boost for the struggling economy.

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"Taking into account the large output and employment multiplier effects from tourism industry value added, the sector has the potential to become a significant source of new output, employment and foreign exchange earnings growth," he said.

A rise in foreign exchange earnings is important because it could aid in the narrowing of the country's large current account deficit, which stood at $88 billion in the fiscal year ended March 2013.

However, with the liberalizing visa procedures, Biswas notes that it's vital the government steps up its focus on enhancing the county's infrastructure.

"The Indian government will also need to give a high priority to developing tourism infrastructure, using both domestic and foreign private investment flows to boost tourism infrastructure capacity with new developments such as airports, hotels and tourist attractions," he said.

—By CNBC's Ansuya Harjani. Follow her on Twitter: @Ansuya_H