India Telecom Budget 2012: Huge disappointment for industry

Telecom Lead India: Indian telecom sector was
expecting major reforms, tax exemptions from the Union Budget 2012, but
increased service tax rate and no infrastructure status has failed to impress the
sector. Though, the sector still sees some benefits from the announcements.


Hemant Joshi, partner of Deloitte Haskin & Sells said
that the biggest disappointment is that telecom sector has not been granted an
-infrastructure status’ especially when it is a great enabler in increasing GDP
growth rate. Accordingly concession/focus given to power, port etc. sectors
have not been given to the telecom sector.


The telecom tariffs are likely to go up by 2 percent with
increase in service tax. Increased rate of service tax will impose burden
on the telecom consumers, which is likely to be around Rs. 2500 Crore.


According to Joshi, the Budget brings some positivity for
the telecom sector as it introduced a viability gap funding for telecom towers
which may help in increasing telecom density in rural areas. The previously
launched USO fund scheme was helping the telecom development in rural sector.


However with this budgetary allocation, growth of towers
in rural areas is likely to accelerate and improve rural connectivity.


Furthermore, mobile phone parts have been exempted from
custom duty which is likely to decrease the prices of handsets manufactured in


Govt has announced enhanced budgetary allocation to
healthcare / skill development, mobile (non-stationary) training centers and
plan to use Aadhar for direct transfer of subsidy to end consumers.  These
are likely to indirectly benefit telecom sector, Joshi added.


Service tax is hiked from the current 10 percent to 12
percent. This will have a huge impact on customers as most services, including
mobile calls, will cost more. For operators, however, this may not be a good
news, as the increase in call rate will in effect reduce per-minute usage per
user, thereby impact operator revenue negatively.


Satya N. Gupta, chief-Corporate Affairs, Telecom
Infrastructure Business, Sterlite Technologies, told Telecom
Lead, “Afordability of the consumer will come down. It may affect the
per minute usage of the operators and may result in to marginal drop in revenue
of operators. 20 percent increase in service tax will boost the revenue of

Indian telecom operators profit to decline 85% in 2011-12


Profit after tax of Indian telecom services segment is
expected to decline 85 percent in 2011-12, according to India Government’s
Economic Survey. The report said the significant decrease in profit is mainly
on account of the sharp rise in the industry’s interest outgo and higher
depreciation charges due to the heavy borrowings for acquiring 3G licences and
rolling out 3G services.


The increased outlays on education with an emphasis of
skilling the youth are necessary steps to leverage the demographic divided in
the future and tap emerging opportunities in the areas of Information
Technology such as cloud computing and Big Data. The decision to increase
investment in Aadhar and leverage technology more in larger service
delivery initiatives will also provide impetus to the domestic IT sector.
Additionally, overall social development and improving India’s
competitiveness in the areas of manufacturing, research and innovation augurs
well for the overall inclusive growth of the economy,” said Rajesh Janey,
president, EMC India & SAARC.


The budget overall is a fairly political budget, with
very little in the way of bold reforms to drive economic growth. Given the
current economic climate it seems to be focused on not upsetting anyone too
much, by not trying to please anyone too much. The only slight silver lining is
the verbal emphasis and some increase in outlays to the infrastructure sector,
but, given the massive requirements here, even this is likely to be seen as too
little too late.  From an IT sector perspective, there is nothing specific
that is either a strong negative or positive, according to Partha Iyengar, vice
president, Garnter India.


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