Almost nothing for communications!

NEW DELHI: The only noteworthy thing for the communications industry is a sharp reduction in cellphone import duties. "The need of the hour is a world class telecom infrastructure. I know it is a very difficult thing to achieve. We need to be more techno-savvy and here the government has a very vital role to play--that of a foster role." That came from no visiting industry executive, but directly from someone who is not just part of the establishment, but who over the last few years has come to be been known as a strong voice of reforms within successive government set-ups. So when Montek Singh Ahluwalia, Planning Commission member and former Finance Secretary, told this to a capacity crowd at the recently held NASSCOM summit in Mumbai, there was absolutely no reason to believe that it was not the official line of thought.

Yet, after today's presentation of the Union Budget 2000-2001, it seems there is little that the government has to offer to communications industry, though its digital cousin--the more visible IT industry--has managed a few sops in the form of lowering of duties and a concessions to the venture capital industry, which is behind the IT revolution.

"In fact, telecom's case is stronger. There is a difference between the two industries--IT and telecom. For the IT industry, it is a question of growth. For us (telecom industry), it is a question of survival," says a top executive of a telecom company, who does not want to be named.

This view is echoed by Dr N. Bhaskar Rao, President of the cross-sector telecom forum Pacific Telecom Council India Foundation (PTCIF), "The intentions and plans of the government are out of sync. The so many references that the FM made to the sector means the government considers it an important sector. But the Budget has failed to offer anything for the industry. Mere intentions don't help you to grow."

Nobody expected major sops from a Budget that the FM had earlier indicated would be tough, but the telecom industry was hoping to get some of the promises of the National Telecom Policy 1999 translated to specific steps in the Budget. There is disappointment that it did not happen.

The Association of Basic Cellular Operators (ABTO) is upset that the concession promised in last year's Budget that were withdrawn latter due to confusion over some definitions would be restored. They were disappointed. The only positive step, says ABTO, is that its recommendation last year to adjust MODVAT credit against service tax has finally been agreed to by the FM through this year's budget.

The forthcoming long distance service providers should also take consolation from the fact that the import duty on raw material for optical fibre cables have been dropped from 15 percent to five percent.

The cellular operators are happier because the most noteworthy step in the telecom sector in the entire budget--the sharp reduction in customs duty on cellular handsets from 25 to 5 percent--will benefit them, though not any other concession has been offered to the service industry per se. This sharp drop in the duties will mean that the cellular phones would be cheaper by about 16 percent. This is likely to push the demand for cellphones.

The long-standing demand of Internet Service Providers (ISPs) to be accorded the infrastructure status has been ignored by the finance minister. But there is also some good news for them--the customs duty on ISP infrastructure equipment like switches and routers have been reduced. The net payable customs duty now would be 22 percent, as compared to 41 percent earlier. The entry barrier for small ISPs has been lowered further through this.

The reaction of Arun Seth, MD of BT (Worldwide) Ltd.--which operates in cellular and Internet through JVs--is naturally positive. "Mobile and Internet are key areas of BT in India and we welcome the decision of the Finance Minister to lower the duties on cellphones and computers as this will help boost demand."

Even if one takes a very dispassionate look at things, one would admit that it is almost imperative for the government at this point of time to develop the telecom infrastructure so as to realize the dream of being an IT superpower. And that can only be done through a vibrant industry, not by mere lip service.

The NASSCOM-McKinsey study on India's opportunity in the IT area also identified this as a critical factor. In almost every major SWOT analysis of India, whether it is for doing business in general or setting up IT-enabled services, lack of proper telecom infrastructure is always on top of the list of weaknesses. How long will it remain this dubious No. 1, Mr Finance Minister?