Budget 2004: Telecom
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Foreign direct investment limit on telecom companies raised to 74% from 49% earlier. |
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Reduction in customs duty on capital goods for the telecom sector from 25% to 15%. |
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Continuation in tax holiday for infrastructure related sectors. |
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Customs duty on optical fibre cable reduced from 25% to 20% |
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In a significant but expected move, the Finance Minister has raised foreign direct investment limit in telecom companies from the current level of 49% to 74%. This is a big positive for the sector. As known to everyone, telecom is capital intensive in nature with significant cash outflow incurred in the initial three to four years of commencement of operation. Along with network expansion, the second round of consolidation is expected in the near future. Bigger players like Bharti and Reliance would like to access foreign markets and/or bring external partners. In this context, this is big positive for the sector. |
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Though the industry has been longing for reduction in customs duty on capital goods for the telecom sector at 5%, the rate has been reduced to 15%. This combined with the reduction in duty on fibre optical cable will benefit players in the form of lower set up charges. |
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Concessional customs duty of 5% allowing import of equipment for telecom infrastructure should be continued. |
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Grant deemed export status to indigenous manufacturers of telecom equipment wherever duty on finished products has been reduced to 5%. |
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Telecom software should be treated at par with computer/IT software made eligible for zero customs duty. |
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Import of switching apparatus at concessional customs duty of 5% should be extended to basic operators also. |
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Customs duty on cellular phones should be reduced from 10% to 5%. |
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| Key Positives |
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De-regulation of the telecom sector has resulted in robust growth in both cellular and basic subscriber base. Cumulatively, penetration level has crossed the 4% mark. |
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The de-regulation of the domestic/international long distance telephony segment and tariff rationalisation has increased telecom usage. |
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Consolidation is the name of the game currently. Smaller players are slowly realising the need for adequate management skill (given the dynamics of the industry) and capital to sustain growth. Bigger players continue to expand operations. |
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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 and interconnection policy is 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. Penetration level in rural areas has more or less remained stagnant. |
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