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Budget 2012 - Industry Reactions
Sanjay Kapoor, CEO, Bharti Airtel, India & South Asia,  stated that the telecom sector is already burdened with multiple and high tax levies which account for 30% of the telecom services revenue and the rise in service tax from 10% to 12% will further increase the cost of services to customers and also impact the profits and losses of telecom companies. He also stated that the proposals on mobile based fertilizer subsidy tracking and heightened IT enablement will drive the growth of Information and communications technology (ICT) and the FM’s recommendation for gap funding of telecom towers, cables and optic fibres should lead to a reduction in cost of the capital for telecom infrastructure. In addition, the reduction on duties on mobile parts will enhance affordability and thereby drive the demand for mobile services across the country.
 
 
Vsevolod Rozanov, President and CEO MTS India - While many systemic elements have been set right in the 2012-13 Union budget, however the telecom industry continues to face numerous challenges. Increase in service tax from 10% to 12% would increase cost of ownership of a mobile phone. This becomes all the more significant for CDMA based mobile services which to a large extent services the telecom needs of customers who are at the bottom of the pyramid.
 
From a global perspective, the telecom industry in India continues to attract the highest tax rate of 23%. Looking in AGR terms, the telecom industry generates revenues of approx. Rs 122,000 crores, out of which Rs 28,000 crores is the approx. outflow to the exchequer. It would have been good, if this could have been rationalized. The telecom industry is clearly getting squeezed on account of such outflows and what makes the situation all the more difficult is the hesitation of banks to lend money to operators. All this naturally has a deep impact on the roll out of voice and data services for the common man, specially in the rural areas. Equally significant is the fact that broadband penetration in India stands at just 1% as against the wireless teledensity of 74%. With the national broadband plan envisaging 160 million broadband connections including 60 million wireless broadband connections by the year 2014, It would have been good, if this growth path would have got some support through easing of taxes on internet and broadband services. Given this overall context, if the Indian telecom industry is declared as an infrastructure industry that too would immensely benefit the entire ecosystem. 
 
Cellular Operators Association of India (COAI) - The Cellular Operators Association of India (COAI), the largest industry body for telecom operators, equipment manufacturers and infrastructure facilitators in the country has expressed disappointment on the Union Budget 2012-13 as announced by the Hon'ble Finance Minister Shri Pranab Mukherjee. The budget announced does not address critical issues related to the telecom as well as infrastructure sectors of the country.
 
On a positive note, infrastructure funding, including that for cellular towers, Optical Fibre Cables (OFC) and cables have been provisioned to work through Gap funding which seems positive as it is expected to bring down the operating capex considerably.
 
The provision of Mobile tracking for fertilizer subsidy also looks to be favorable. But apart from that, there are no major takeaways for the industry.
 
Contrary to the recommendations put forth by the industry, no tax relief/benefits have been granted to the telecom industry which keeps reeling under rising operating costs and deteriorating margins. Moreover, the increase in service tax from 10% to 12% will further affect the growth of the industry as it is detrimental to the objectives of rural penetration and affordable rates for the consumers. The increased costs will eventually be borne by the consumers in the form of higher charges for the services.
 
It is very disheartening that there are still no provisions to support the industry which has been acknowledged as a vital contributor to the nation's economic health. While we are happy that industries like agriculture have received adequate support, the telecom sector has again been deprived of the much required provisions that would motivate the industry to grow.
 
Rajdeep Endow, Managing Director, Sapient India - “On the whole it has been a very average budget. There was an opportunity to make some clear moves to move the needle on growth and investment. Instead, we have been given a safe budget. The increase in excise duty and service tax will hurt growth and will likely cause inflationary pressures. For the IT industry, I expected to see MAT exemption to SEZ units, which did not happen. On the positive side, I welcome the increased investment in education, health care and housing." - Rajdeep Endow, Managing Director, Sapient India.
 
PVG Menon, President, India Semiconductor Association (ISA) - “ISA broadly welcomes the budget with it’s thrust on accelerating overall GDP growth from 6.9% to 7.6%. We welcome the thrust given to areas like infrastructure development, skill development, encouragement of R&D, and the focus on helping SME’s.
 
However, we view with concern the increase in Service Tax and increase in excise duty on certain items which are traditional consumers of the electronics and components industry in India.
 
We would have liked to see some initiatives being announced for the promotion of the domestic Electronics Design and Manufacturing (ESDM) industry, which has  a potential to grow to $400 Bn by year 2020. We are also looking forward to the final policy as well as implementation details of the new National Electronics Policy as well as the National Telecom Policy, as related to ESDM sector.”
 
MP Vijaykumar, Chief Financial Officer, Sify Technologies stated that the budget was not a disappointment in its entirety and was glad that there is reaffirmation from the government that GST, DTC will soon become a reality. The announcements towards fiscal discipline in terms of subsidy cap and the focus towards long term growth – R&D, venture capital funds scope enhancement, Investment linked deduction are in the right direction however it is yet to see how the government will deliver on taboo subjects until now, like the subsidies and fiscal deficit.

Sunil Dutt, Managing Director, Research In Motion India - “It can be said that the Budget was well balanced and focuses more on long-term growth aspects instead of short-term populous measures, can be termed as positive and growth oriented. It indicates some prudent steps towards fiscal consolidation and reflects that the government is sincere about the fiscal situation going forward. The proposed full exemption on mobile phone parts may further make the smartphone affordable to larger section of the masses and basis the direct taxes, the increase in disposal income will further enhance the penetration of smartphones. The budget is expected to stimulate growth for agriculture, banking & m-payments industry with development of tier II, III markets. This will in turn enhance the adoption of mobility contributing to the overall growth of the economy.  Introduction of a constitutional amendment for GST is also a positive development.”
 
Vikram Doshi - Tax partner , KPMG on R & D - At present, companies engaged in certain businesses are eligible for a tax deduction of 200% on certain expenditure incurred by them on in-house research and development facility.  This deduction was slated to expire on 31 March 2012.  It is proposed in the Union Budget 2012 to extend this deduction by another period of 5 years.  The industry had demanded this benefit given that innovation has become an imperative in today's economy without which the industry will not remain competitive.  This is a welcome move especially given that implementation of Direct Taxes Code is now delayed. 
 
The above proposals dovetail with government objective of ensuring that R&D is given enough emphasis given India's innovation standing vis-à-vis the rest of the world.
 
Jaideep Ghosh - Partner, KPMG Advisory on Telecom sector - The Union Budget 2012 has a neutral to mildly positive impact on the Indian telecom sector. Overall emphasis on strengthening the rural economy and inclusive growth will have a positive trickle down impact on rural penetration of telecom services. Inclusion of telecom tower infrastructure in the viability gap funding and incentives for solar power is a positive move towards strengthening of rural telecom infrastructure; however considering that impact of USO to enhance rural tele-density has been fairly limited so far, the real impact of the measures announced will be keenly observed. Exemption of customs duty on parts of mobile phone memory cards is unlikely to result in a significant reduction in device prices and penetration, and likely to have a neutral impact on device penetration. There were no major announcements on broadband services, which the industry was expecting. However many of these areas are likely to be addressed by the forthcoming National Telecom Policy. 
 
Lavanya Rastogi, OSSCube - Budget 2012 is yet again a reflection of the tightrope walk imposed on the FM by challenging economic climate and its left leaning allies. The underlying populist compulsions  seems to be very fast eroding his credibility as someone with fresh ideas  - and much less the courage to implement them. The budget fails to deliver a clear signal to the industry that Government is serious about “action” in reforms.  Promises are a plenty – ranging from FDI in Aviation to fast tracking the DTC but all of them seem to be missing a concrete timeline and sound like a repeat of 2011.
 
Yet again “policy pedicure” style effort seems to have been made in support of the manufacturing, banking and agri based industries, even SME’s find a mention with  revision limit on compulsory Tax Audit – but the budget sorely lacks of a single game changing move.  Knowledge based industries like IT, ITES & even Pharma seems to have been totally given a miss by the FM. 2nd budget in a row with a flavor of “stale”,  it's bound to cement cynicism amongstthe most optimistic entrepreneurs.   The budget does carry adjustments like – easing of sectoral caps on VCs  but they range from being nominal to well short of long term impact.
 
Where the political compulsion gives him breathing room, the FM does deliver good news - National Skill Development Fund to 1000 Cr and increased support for the Farmers and agri business ecosystem are good moves. Aam Admi does go home with a a few goodies, and beneficiaries of social safety net are better taken care of -  so to that extent  thank you Mr. FM – but is this all we can expect from you ?
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