BUDGET 2000: Telecom Is a Loser

All talks
about convergence notwith-standing, the two digital industries
of the e-age continue to play by different set of rules. Even
the treatment meted out to them by the government is different.
Let the communications companies face the truth. Technology
business is 80 percent hype and 20 percent serious business. The
Union Budget 2000-2001 has put the official seal of approval on
this truth.

All sops in the Budget
went to the IT industry in general and the VCs–the prime mover
behind the dotcom hype–while all that the
struggling-to-survive telecom industry got was a reduction in
imports duties on cellphones. And a minor reduction in imports
of raw material for optical fibre cables.

But is not the IT industry
performing better? Of course, with little government
interference Indian entrepreneurs in IT have proved to the world
that they are second to none. With all the possible roadblocks
created by the government, you cannot expect telecom industry to
grow that way. That is an irony. In fact, it is more the reason
to give them sops. "In fact, telecom’s case is stronger.
There is a difference between the two industries–IT and
telecom. For the IT industry, it is a question of growth. For us
(telecom industry), it is a question of survival," says a
top executive of a telecom company, who does not want to be
named.

In almost every major SWOT
analysis of India–whether it is for doing business in general
or setting up IT-enabled services–lack of proper telecom
infrastructure is always on top of the list of weaknesses. It is
not that the government does not recognise that. "The need
of the hour is a world class telecom infrastructure. I know it
is a very difficult thing to achieve…. We need to be more
techno-savvy and here the government has a very vital role to
play–that of a foster role," said Montek Singh Ahluwalia,
Planning Commission member and former finance secretary told
this to a capacity crowd at recently held NASSCOM summit in
Mumbai. And there was absolutely no reason to believe that it
was not the official line of thought. Says Dr N Bhaskar Rao, the
president of the cross-sector telecom forum, Pacific Telecom
Council India Foundation (PTCIF), "The intentions and plans
of the government are out of sync."That is echoed by most.
The Association of Basic Cellular Operators (ABTO) is upset that
the concession promised in last year’s Budget that were
withdrawn later due to confusion over some definitions would be
restored. The only positive step, says ABTO, is that its
recommendation last year to adjust MODVAT credit against service
tax has finally been agreed to by the Finance Minister through
this year’s budget. The forthcoming long distance service
provider should also take consolation from the fact that the
import duty on raw material for optical fibre cables has been
dropped from 15 percent to five percent.

The long standing demand
of ISPs to be accorded the infrastructure status has been
ignored. But the good news is that the customs duty on ISP
infrastructure equipment like switches and routers has been
reduced. The net payable customs duty now would be 22 percent,
as compared to 41 percent earlier. The entry barrier for small
ISPs has been lowered further through this. Also, falling PC
prices because of the reduction in duties of most components
should increase PC penetration, increasing the addressable
market size for ISPs.

The cellular industry is
happier because of the sharp reduction in customs duty on
cellular handsets from 25 percent to 5 percent. This will
benefit them, though there has been no other concession to the
industry per se. This sharp drop in the duties will mean that
the cellular phones would be cheaper by about 16 percent. This
is likely to push the demand for cellphones. The reaction of
Arun Seth, the managing director of BT (Worldwide) Ltd–which
operates in cellular and Internet through JVs–is positive.
"Mobile and Internet are key areas of BT in India and we
welcome the decision of the Finance Minister to lower the duties
on cellphones and computers as this will help boost
demand."

Overall, the Budget from
telecom point of view is completely lacklustre. The telecom
industry was hoping to get some of the promises of the National
Telecom Policy 1999 translated to specific steps in the Budget.

It has not clearly
happened. Now, it is for the administrative ministry to be a bit
proactive. One can only hope.