Budget 2013-14 ignores telecom industry

Telecom Lead Asia: Indian Budget 2013-14 did not offer any special support for the struggling telecom industry in India. Growth of the  telecom sector will depend on India’s growth.

One of the main announcements — made by finance minister P Chidambaram today — was on duty increase on mobile phones priced above Rs 2000 and 5 percent duty hike on STB (set up boxes), and zero customs duty on import of plant and machinery for the semiconductor industry.

Measures such as $1 trillion investment in infrastructure in the 12th plan, allocation of Rs 65,867 crore to education ministry, up 17 percent, etc. will be a boost for the telecom sector.

Interestingly, the finance minister did not do any thing special to boost telecom investor confidence.

P Chidamabram — during the Budget 2013-14 — said: “India’s worry is the current account deficit. India will need more than $75 billion this year and next year to fund deficit and hence decided to rationalize expenditure.”

There will be 6 percent duty on mobile phones above Rs 2000. This will escalate the price of both feature phones and smartphones.

In the first half of 2012, India shipments of mobile handsets was recorded at 102.43 million units. During the same period, total India shipments of smartphones were 5.50 million units, according to CyberMedia Research.

The duty increase is unlikely to impact revenue streams of handset makers such as Apple, Nokia, LG, Sony, BlackBerry, Samsung, Spice, Micromax, etc.

SN Rai, co-founder & director, Lava International, said: “Excise duty proposed in the union budget on mobile phones priced Rs 2000 and above will have a very high impact on the industry.”

The industry is already suffering from Non Uniform Vat issue and the increase in the duty further escalate the prices. Also, this step is a discouraging move to the domestic industry which is looking at making India manufacturing base for mobile phones.

However, the finance minister did not touch on tablets. CyberMedia Research expects India media tablets market to sell 3 million units by end 2012. For 2013, it expects over 100 percent growth as OEMs eye India market for consumer, enterprise demand, government business. In July- September 2012 India Media Tablets market sales touched 1.1 million units to grow 99.3 percent q-o-q.

Import duty will be raised on set-top boxes from 5 to 10 percent to safeguard interest of domestic producers. STB price will become costly for digitization. India is looking at adding another 40 towns by March 31, 2013.

This may affect STB companies such as Cisco, Huawei, etc. Cisco won significant standard definition (SD) set-top box business in India in the quarter ending January 26, 2013. Cisco shipped 1.3 million boxes in the fourth quarter compared with 850K in the third quarter, with a large portion of the increase coming from India.

“Cisco has been able to retain attractive margins delivering set-top boxes in India because the engagements are based on end-to-end services. These engagements include Cisco headend equipment (notably, cable modem terminations or CMTS), middleware, and conditional access systems in addition to the set-top boxes,” said Sam Rosen, practice director at ABI Research, recently.

Read: Wishlist of telecom industry for 2013-14 from India’s finance minister.

It’s a disappointing budget for the Indian telecom industry. Seems FM wants the industry to settle down without budgetary measures.

In 2012 as well, Indian telecom budget did not offer any hope for the local industry. (Read the full story here).

Several industry captains say the Union Budget 2013-14 did not have much focus on the telecom sector in particular but the overall budget will be good for investments.

There has been a meaningful increase in planned expenditure to the tune of 30 percent. This year the FM has put out a 4.8 percent fiscal deficit compared to 5.2 percent of last year. However, we see that an increase in government support to the industrial corridors will help growth and see a lot of foreign investment over the course of this financial year.

Sanjay Baweja, chief financial officer, Tata Communications, said: “We feel positive about the commitment to having an ATM in every PSU bank branch by March 31st 2014 as it will provide a huge thrust to ATM network reach, penetration and adoption in India.”

It represents additional growth opportunities for Tata Communications Payment Solutions, a subsidiary of Tata Communications.

Mohammad Chowdhury, leader telecom, PwC India, said: “Of the Rs 40,000 crore revenue expectation from the industry, we feel confident that at least Rs 20,000 crore can be expected from licence fees, and it is conceivable that the Government could raise around Rs 10,000 crore from spectrum extensions and renewals. However, we are unclear as to how much could be raised from auctions of fresh blocks of spectrum, so in our view around Rs 10,000 crore of the Government’s revenue objectives may be at risk.”

The Union Budget 2013 has left the telecom sector deeply disappointed as none of the critical issues relating to the sector have been addressed, the Cellular Operators Association of India (COAI), said in a post-budget media statement.

In his Budget proposals, finance minister P Chidambaram has proposed to raise duty on mobile phones priced at more than Rs2,000 to 6 per cent, but did not announce any incentives for the sector, even though the association of GSM operators had submitted its pre-budget recommendations to the finance ministry.

Among its important pre-budget submissions were the need to provide telecom with infrastructure status, lower multiple taxes and levies in the face of the poor financial health of the sector and the need to boost investor sentiment.

Though, the finance minister emphasised the government’s objective of inclusive and sustained growth as well as financial inclusion, the sector, which COAI says is vital for achieving the stated goals, has again been deprived of the much required relief.

The Government had lost the chance to incentivise the telecom industry, as it did not provide any sops for the sector in the Budget.

Hemant Joshi, partner, Deloitte Haskins and Sells, said: “Generally the budget has been non-event for the telecom Industry as no major changes have been made. The finance minister has lost the chance of incentivising the highly leveraged industry and which has potential to give fillip to the GDP growth.

The smartphone prices would to go up 4 percent due to change in the tax structure. Since Smartphones are important tool for proliferation of data services and other value added services, this proposal may be deterrent in increase in sales of low cost smartphones.

The change in surcharge would result in increase in effective rate of tax on telecom companies by 154 basis points and 96 basis points for normal tax and Minimum Alternate Tax (MAT), respectively.

The investment allowance during Financial Year 2013-14 and 2014-15 of 15 per cent would reduce tax burden on normal rate tax paying telecom equipment manufacturers, in case they invest more than Rs 100 crore in plant and machinery in a particular year.

The expectation of garnering about Rs 40,000 crore in FY 2013-14 from auction looks ambitious as operators are not participating in the planned auctions and also they have been given deferred payment option which would result in collection of fees over the period of 10 years.

Anand B
[email protected]