The value of goods or services imported to meet the tourism needs is termed as leakage. The more the leakage the less is foreign exchange earning and less leakage means more foreign exchange earnings.
The following factors are responsible for leakage.
- Costs incurred to import goods and material for infrastructure like air conditioned coaches, planes, airport equipment etc.
- Foreign exchange spent on publicity, promotions, setting of tourist offices abroad etc.
- Entry of multinationals reduces profits and taxes in the host country since payments are made in tourist origin countries.
- Commissions paid by tour operators etc. to foreign retailers.
- Reduction in or exemption of duties and taxes by host countries on foreign companies etc.
Hence the increase in foreign exchange earning can be ensured by checking leakages. This depends on the types and forms of tourism promoted and for which budget categories.