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DoT for sharp cut in import duties on telecom equipment - Views on News from Equitymaster
 
 
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  • Jan 18, 2000

    DoT for sharp cut in import duties on telecom equipment

    According to newspaper reports, the Department of Telecom (DoT) has recommended a sharp cut in the import duties levied on cellular phones and pagers from 25% to 5%. It has also proposed that duties on capital goods and raw materials used in the telecom and cable industry respectively be abolished.

    The domestic telecom sector was one of the first public sector domains that were opened up for private players. In their enthusiasm to tap the vast untapped potential in the domestic telephony sector, private operators bid astronomical amounts for both the basic and cellular licenses. However, the growth in the industry has not measured up to the expectations of the operators, leading to huge losses in the industry. Coupled with this, till recently, was the intense cash flow problem that arose from the regular license fee payments that were to be made to the government.

    The government and the Telecom Regulatory Authority of India (Trai) have taken measures to control the telecom sector from falling into a downward tailspin that would have ultimately hurt the telecom infrastructure in the country. A first of these measures was the shifting of the operators to a revenue sharing regime as against fixed license fee payments. This took care of the cash flow related problems.

    However, in order to generate growth the government needs to ensure, especially in the case of mobile telephony services, that equipment is available at reasonable costs. In this regard, DoT's proposal needs to be lauded. A reduction in duties would lead to a downward revision in handset prices. This could provide the much-needed trigger for the domestic industry.

    Then is the issue of capital costs. In order to stimulate investment in telecom infrastructure the government needs to cut down import duties. This will make such investments more viable in view of the slower industry growth rates.

    The DoT has also proposed that Internet service providers be allowed to import equipment on terms similar to that of telecom service providers.

    The DoT's proposals will find acceptance with a large number of service providers. However, in view of the government's tight fiscal position it may be difficult to expect an across the board rationalisation in duties. Nonetheless, the government needs to seriously consider the DoT's proposals.

     

     

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