BUDGET: Hello FM!

The slowdown has affected the Indian economy and the GDP growth of the
current fiscal is estimated to be 4.8 percent as against the previous fiscal’s
growth of 6 percent. Though there has been a good growth in the
telecommunications sector for the past couple of years, the government would
like to continue the process at an increased pace, as telecom is directly
related to the growth of IT in the country. And telecom also has a direct impact
on India’s economy.

In the budget for the forthcoming fiscal, the industry may see a
rationalization in the duty structure so that there is no discrimination between
basic and cellular service providers, as they together help in building-up the
telecom infrastructure of the country. There is a great anomaly in IT and
telecom software, as the two products are treated differently and have a
different duty structure. The government should try to bring them at par by
bringing them to zero-duty structure.

The long-pending demand of communications industry is to provide industry
status to basic and cellular services, which will enable service providers to
enlarge their scope of benefits that could be availed from different
authorities. Let us look at some of the industry issues for FY 2002-03 budget.

Customs Duty Rationalization: There exists an anomaly in the customs duty on
network infrastructure equipment for different segments of the telecom industry.
Basic service operators pay a higher duty in comparison to cellular operators.
In the case of cellular, it works out to be around 21.8 percent whereas
infrastructure equipment required for basic services, ISP, VSAT services and
national long distance services, calculates from around 38.74 percent to 62.86
percent.

At present, the customs duty on handsets for WLL (M) and cellular services is
pegged at 5 percent with a net effective duty of 26.67 percent. The government
may lower the duty structure, as it will help in checking the gray market which
is on the higher end. Since these products are presently not being manufactured
in India, it will not have an adverse impact.

CVD Elimination: Duties on telecom equipment like base station controllers,
base transceiver station, network management systems and others, are not
manufactured in India, and therefore countervailing duty should be removed. This
will help in reducing capital cost, thereby making the communications services
more affordable.

MAT Exemption: Benefit of exemption from minimum alternate tax (MAT) was
available to telecom and infrastructure companies like road, bridge, airport,
and rail, till the previous year, but was withdrawn by the Budget 2001, thus
resulting in additional hardships for companies. The government may remove MAT,
which will help the companies to increase growth.

Excise Duty Pegging: Excise duty on all the locally manufactured telecom
equipment may be pegged at the lowest level of 8 percent, to provide support to
both the manufacturing and services segment of the telecom industry.

Deemed Exports: At present, supplies by local manufacturers to industries
like power, fertilizers, and refineries, have been recognized by the government
as deemed exports. Due to this, the local suppliers get customs and excise duty
benefits. Since telecom is also a part of the infrastructure sector, the
government should treat indigenous supplies to telecom infrastructure creators
and service providers as deemed exports.

During mergers and acquisitions, the telecom industry has been excluded from
Section 72 (A) and denied the right to carry forward losses and unabsorbed
depreciation in case of an amalgamation, though this benefit has been made
available to other industries, including the software industry. The government
should consider this aspect too, as in future we might see more acquisitions,
which can help in market stabilization.

Pravin Prashant