NEW DELHI (Reuters) - It's billed as one of the world's most luxurious and romantic train journeys. An old-world tour of India's palaces and lakes, all the way to the Taj Mahal.
Despite great expectations when it was launched in January, the Royal Rajasthan on Wheels train, with $2,000 suites and gourmet dining cars, has at times been left languishing in the rail yards as the global economic crisis and the aftermath of the Mumbai attacks put the brakes on India's tourist boom.
"If you don't have guests, what's the point of running the train?" asked Supinder Singh, the president of Palace Tours.
India has seen its tourist arrivals drop in recent months for the first time since 2002 when it launched its hugely successful "Incredible India" campaign that enticed millions of well-heeled tourists from around the world to explore the wonders of India.
Winter is peak season, but this year business has been slow and hotels are struggling to fill empty rooms due to mass cancellations by foreign tourists. All sectors have been hit, from pricey tours of Rajasthan, to budget beach holidays in Goa.
When Palace Tours launched the Royal Rajasthan on Wheels in January it had high hopes the $8 million train would be inundated with bookings by wealthy tourists seeking to explore India in the comfort of a five-star train compartment, with wireless Internet, a spa and silver-service dining on demand.
Instead, the Royal Rajasthan on Wheels has either been relegated to the rail yards due to lack of passengers or plied the journey through Rajasthan to the Taj Mahal in Agra, with only a handful of the possible 82 visitors it can carry.
"I think there are more staff than us," said Amrit Dhaliwal, a tourist who traveled on the near empty train this month with her husband.
The American couple were among 10 passengers who embarked on the trip from New Delhi, welcomed by traditional musicians sitting on cushions and playing flutes and drums.
"We didn't realize it would have so few people on it. It would have been nice to have had more people," said Amrit's husband Kulwant.
Several of the visitors on the train were upgraded from the less lavish Palace on Wheels, a sister train that is operating at about 60 percent capacity instead of its usual 100 percent.
Tourism contributes more than 6 percent to India's GDP of $1 trillion, and employs 53 million people directly or indirectly. Foreign tourist arrivals to India dropped 12 percent to 522,000 in December, compared to 596,560 in the same month in 2007.
The plunge in arrivals has hurt the entire sector from New Delhi, to Agra, to the beaches of Goa and Kerala, which in recent years have become favorite haunts for European tourists soaking up the sun during the winter at home.
Boats and fishing gear are more visible than sunbathers on some of the most popular beaches of Kerala, and business is so slow that restaurant waiters and shopkeepers vie for the odd tourist seen wandering about the streets.
"The specter of cancellations we have been witnessing following the global meltdown has increased in the wake of the terror strikes," said Peter Kurien, the general manager of the Jasmine Palace hotel.
"All the hotels and restaurants used to be filled to capacity at this time of the year. They are half empty now."
Aside from the global economic woes which have prompted many potential tourists to tighten their belts and stay home, India is still reeling from the Mumbai attacks in which Islamist gunmen killed 179 people in a three-day shooting spree in November that was broadcast live on television news channels around the world.
Foreigners appear to have been targeted as the gunmen attacked two luxury hotels, a popular night spot and a Jewish center in India's financial capital.
Since then, countries have issued advisories against traveling to India and popular tourist areas such as Goa have been on alert for more attacks.
"There was a slowdown anyway," said Dhruv Shringi, the CEO and co-founder of Yatra.com travel.
"Post the Mumbai attacks, we had almost a 22 percent cancellation in December and it's about 15 percent in January. So my worry is this trend seems to be continuing into February."
Hotel occupancy rates in the seaside town of Kovalam in Kerala were at 60 percent over the peak season, compared to nearly 100 percent at the same time last year.
Ratings agency Crisil said in a report in January that "hotel occupancy rates (in India) are expected to show their steepest decline in a decade."
A slump risks undermining India's enormous growth potential in the tourism sector, which the United Nations World Tourism Organization (UNWTO) says has been let down in the past by a lack of adequate accommodation and poor infrastructure.
Despite its size and array of historical monuments, India ranks at no. 42 in the world's holiday destinations of choice.
Slashing hotel rates, offering buy-one-get-one-free air tickets and free spa treatments are some measures being introduced to entice visitors. Security has been visibly beefed up at many of India's plushest hotels, especially in New Delhi and Mumbai.
But some tour operators are frustrated by what they see as the government's failure to address the sector's relatively slow progress compared to other destinations.
It rankles that smaller Asian rivals such as Thailand, which ranks at number 18 in the foreign tourist arrival rankings, and Malaysia, at 11, are far ahead of the south Asian giant.
"What is there in Malaysia? What is there in Thailand?" asked Sujit Banerjee, the secretary of the Ministry of Tourism at a crisis meeting for the tourism sector in January. "Only 5 percent of India has been shown to the world.
Tour operators say India is seen as a "hardship destination" even as hotels in major cities charge up to $400 a night.
"If you land at the airport and if it takes you an hour-and-a-half to get your bags and then you have to fight in a taxi queue, that's not really the kind of experience you want as a customer," Shringi of Yatra.com said.
An advertising campaign featuring one of India's biggest Bollywood stars has been launched to send a message to touts hassling tourists that "guest is god."
"India is not giving value for money," said Himmat Anand, the managing director of Diethelm Travel India. "There is an ostrich mentality amongst us when we say everything is alright."
Additional reporting by D. Jose in Thiruvananthapuram; Editing by Megan Goldin