Union Budget 2010: Mixed Response from Telecom Industry

Telecom industry was cautious when they responded to the 2010 Budget. Many hailed the Budget since it is progressive in nature, but it did not meet many of the demands of the operators.

According to Sivarama Krishnan, Executive Director/ Partner, Performance Improvement, PricewaterhouseCoopers, The budget is relatively luke warm from the telecom service provider's standpoint, in terms of direct impact but from an end consumer standpoint this budget does has something to cheer especially in the context of 3G.

The budget has not been progressive in terms of possible expectations related to 80 IA, especially in the context of new telecom operators and intense margin pressures. Further, from an operator standpoint, the MAT increase may have impact on few players in the context of increased capex linked to 3G and network expansion. On the other hand the reduction in surcharge by 2.5% may marginally offset the above. The budget allocation of over 1300 cr for defense network validates the position on 3G and the move supporting spectrum release for the industry.

From a consumer standpoint; Mobile handsets are likely to be more expensive, in the context of excise roll-back. However given the growth in volumes, it is likely that manufacturer would not pass this on entirely to the end consumer. Further, the personal tax breaks would leave the urban middle class with more to spend; something to cheer about in the context of 3G. Also, the continued outlay towards initiative like NREGA would increase the spending power of rural India. Overall the budget is neutral from the Telecom industry standpoint.

Telecom Neutral

According to CARE, the exemption from basic customs duty and CVD to components for manufacture of battery chargers and hands-free headphones of mobile handsets will make the mobile phones cheaper which in turn will have a positive impact on their demand. The increase in MAT from 15% in 2009-10 to 18% in 2010-11 may adversely impact the telecom service providers as they may have to pay higher taxes.

Naresh Wadhwa, President and Country Manager — Cisco - India and SAARC, says the budget this year would have a broad appeal in India, with a significant focus on inclusive growth and development at all strata. The emphasis on infrastructure development — both urban and rural - is both highly visible and highly welcome. It is heartening to see the significant rise in the allocation towards social welfare.

The 'National Clean Energy Fund' will position India as a leading force in finding ways to combat the imminent energy crisis. It will also simultaneously encourage research and technology projects in the clean energy space. The proposed provision to simplify the FDI (Foreign Direct investment) model followed in India is also a welcome measure. With the noble intention of spurring R&D across sectors, this budget paves the way for tax reforms on in-house R&D expenses, and also on contributions made towards scientific research to associations, colleges, universities and other institutions. While research and development gets a leg-up, higher education and corporate tax reform waits for its turn. The UIDA took the lead among e-infrastructure initiatives, and broadband roll-out and major e-governance projects still needs to be addressed.

Making India a Manufacturing Hub

Sumeet Singh, Executive Director, Unisys Infosolutions, solution said Telecom manufacturing is hitting the next level, which will see mass local production of not just the mobile phone but also key accessories and components. "Top mobile phone makers like Nokia, Samsung, Motorola to Sony Ericsson and their suppliers will gain with the FM proposing tax breaks for makers of mobile phone accessories. Most notable is the extension of the benefit of 4% SAD (special additional duty) exemption on mobile phone parts, components and accessories to March 31, 2011, from the earlier June 2010 deadline. Accordingly, the three key accessories, battery packs, chargers, and hands-free headphones, are expected to see mass production in India as their basic duty, CVD and SAD have all been exempt. This will see an increase in the mobile penetration levels at the grass root levels and hence give a thrust to the mobile VAS industry,"
he said.

Ambrish Bakaya, director — corporate affairs, Nokia India, said: “The Union Budget 2010 is a progressive and growth oriented budget reflecting the Government's commitment towards driving inclusive growth and a strong development focus, along expected lines. The Budget has addressed key areas including education reforms, infrastructure spending, rural sector and supported overall business and consumer concerns, including a focus on bringing back fiscal discipline and prudence. We believe that this budget reflects the government's disposition towards increasing employment, productivity, skill building and domestic demand and increasing India's global competitiveness through necessary policy intervention and investments.”

“We would like to thank the government on its proposal to extend the benefit of exemption of Special Additional Duty of Customs (SAD) of 4% on parts imported for manufacturing mobile handsets from July 06, 2010 to March 31, 2011,” he added.

The Union Budget 2010 has also responded positively to the industry's request on manufacturing of parts and accessories of mobile handsets in India. The budget proposes to remove the 24% import duty on components/raw material imported for manufacture of batteries, chargers and other part and accessories. The will help bring more investment in the area to the country and encourage domestic manufacture of parts and accessories. We believe these moves are extremely encouraging to the category, and will help catalyze India's emergence as a global telecom manufacturing hub.

Separately, the move towards exempting the Special Additional Duty of Customs (SAD) of 4% on import mobile handsets is also a very welcome step. This duty was hitherto refundable on payment of VAT; this step will make the entire process of handset imports much simpler, facilitating better cash flow in the industry.”

Gary Singh, Country Head, Obopay India, says the budget proposal put forth by the Finance Minister has been very encouraging and will give a boost to the banking industry. Their proposal to reduce mobile phone rates will propel the mobile banking market. With allocating additional banking licenses and capital infusement, it will become mandatory for banks to reach out to villages and include them in the banking system. The UID program is also expected to enable the unbanked population for financial inclusion and act as a catalyst in helping banks in bringing them under the banking umbrella. To reduce operational costs, banks will start looking for additional avenues such as mobile banking and e-banking to promote microfinance and also banking transactions within the country. These proposals will benefit the overall mobile services industry, by developing the local eco-system through opportunities to mobile manufacturing companies, banks and financial institutions.”

According to Ganesh Guruswamy, Vice President and Country Manager, Freescale Semiconductor India, “Our Finance Minister Mr Pranab Mukherjee has clearly outlined the core focus areas to achieve double digit growth in GDP over the next 3 years. To achieve this goal, we need to primarily focus on existing bottlenecks like Infrastructure, government systems and structures and fight corruption. India's broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown has worked wonders in controlling the falling GDP. Today, sectors like Automotive and Manufacturing have already shown double digit growth which should propel other allied industries to grow as well. Liberalization of pricing and payment of technology transfer fee and trademark will boost the foreign investment environment.

The heavy stimulus package provided to the Agricultural, Infrastructure and Energy sector shows the government's focus towards achieving overall growth. In addition, the Karnataka government recently announced its Semiconductor Policy, the first of its kind by any state which is aimed at augmenting the $120 billion electronic system design and manufacturing industry in the state. The policy has also put in place a proposal for setting up labs for testing chips. These are strong indicators for a bright year ahead for the semiconductor industry and the country, he added.

Deepesh Gupta, MD, Zen Mobiles, said: “The telecom sector is one of the fastest growing sectors in India, which also boasts of having the second largest telecom user - base in the world. Since January 2009, India has been adding more than 11 million wireless subscribers on a continuous basis. Battery chargers and hands-free headphones are the basic accessories of mobile phones and extending exemption from duty presently available for parts, components, accessories for manufacturing of mobile handsets to parts for the manufacture of battery chargers and hands-free headphones, will lower the overall cost of handsets. This will ensure fast, spread of affordable connectivity to local consumers which are primarily in the rural and semi rural areas and will help in boosting the growth in rural India and will be beneficial for companies such as Zen Mobiles."

DK Ghosh, CMD - ZTE Telecom India, said: “I think it's a good and balance budget in a very difficult situation where pressure for growth is facing challenges from spiraling prices & inflationary forces. The finance minister has tried not to stoke inflationary forces by indulging in any financial adventurism. His attempt has been mainly to ensure that government help gets down to the different vulnerable sections of society, accelerate the build-up employable skills on a massive scale and rescue agriculture from stagnation.

Supply side economics of Mr.Mukherjee is commendable and reveals his insight into the core of the economic problems facing the country. He has granted number of concessions to the middle class and to industry specifically for telecom handsets. The announcement of introducing GST & direct tax code in 2011 has been very bold move and will promote a national prospective in business and industry. His promise of taking growth to 9% in two years and to reduce fiscal deficit to below 4% augurs well for the nation. The success of the budget will depend upon the response of industry & business to the budget.

According to Vivekanand Venugopal, Vice President & GM, Hitachi Data Systems, India, Growth schemes in Banking, Investments in e-Governance and Infrastructure will drive investments in IT. The revision in Income Tax slabs and investments in Rural Sector Development is encouraging.

By Team V&D