Telecom Industry
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Budget measures |
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Exemption of telecommunication companies under Section 80-IA. |
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Increase in customs duty on cellular handsets from 5% to 10%. Removal of 16% CVD on handsets.
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Lowering of interest rates by 50 basis points on all administered interest rate instruments.
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Increase in depreciation rate for capital goods to 15% if capacity is raised by 25%.
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Budget Impact |
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The telecommunication sector is undergoing a phase of rapid consolidation and expansion. With a view to encourage its growth, the FM has proposed to extend the benefit of Section 80-IA for telecom companies. As a result, telecom companies would be able to avail the benefit of carry forward and set off of past losses in case of mergers.
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For a capital-intensive industry like telecommunication, lower interest rates augur well.
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Hike in depreciation for capital goods will result in higher cash flow for telecommunication companies.
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Though customs duty on mobile handsets have been increased, the Finance Minister has removed CVD of 16% on mobile handsets. As a result, handset costs might fall thereby facilitating higher subscriber growth.
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Industry wish list
Prakash Bajpai, President & CEO, Hughes Tele.com India Limited
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Reduction in customs duty on network infrastructure equipment required for basic services to avail concessional duty at par with cellular, internet & paging services. Currently, basic operators have to pay a customs duty of 15% while the cellular, internet & paging service operators pay a concessional customs duty rate of 5% for identical CDMA WLL equipment.
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Zero customs duty on equipment required for VPTs.
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To stimulate domestic production of equipments using indigenous technology, excise duty should be kept at the lowest slab of 8%.
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Key Positives |
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The setting up of the Telecom Regulatory Authority of India (TRAI) has de-politicised the reform process in the telecom sector.
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The de-regulation of the domestic long distance telephony segment and tariff rationalisation has increased telecom usage.
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Growth in mobile subscriber base has been robust.
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The government has taken initiatives to attract investment in the telecom hardware and services sectors by easing FDI guidelines. It has plans to increase FDI limit to 74%.
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Both Internet usage costs and bandwidth costs have fallen considerably thus increasing the subscriber base.
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Key Negatives |
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The regulatory environment, though has improved, is still perplexing. Lack of clarity in licensing norms has been a cause of concern.
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Both domestic as well as international long distance telephony rates have declined sharply. The trend is expected to continue in the next fiscal also. But usage has not increased commensurately.
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Competition has increased multifold and certain government policies seem to be favoring telecom PSUs.
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Import duty on telecom hardware continues to be at a high 35%. This has led to higher capital costs for telecom projects.
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