TV Ramachandran, director general of COAI, said there was no immediate benefit from the budget, but he hailed the decision to appoint a committee to simplify the tax structure. However, with the extension of service tax to content providers, value added services could be costlier and it would be a major area of concern. With voice telephony tariffs dipping to the lowest, operators were looking to tap these services to boost their revenues.

The telecom industry cannot digest this budget whole-heartedly as the sector was expecting that the government would accept another long-pending demand of service providers, DoT and TRAI to reduce annual revenue share, or license fee, to a flat 6% from the present 6-10% of their aggregate gross revenues (AGR) towards license fee, based on the circle of operation.

Road to a Major Reform
Sanjeev Aga, managing director, Idea Cellular, is encouraged by the balanced budget. "We are encouraged to learn of the formation of a DoT committee to work on the introduction of a single levy for telecom services. Presently, we have as many as eight or nine levies, which aggregate over a third of a customer's bill. This high level of total taxation is retarding the expansion of services, chiefly to unserved areas. It is also a very inefficient method of taxation. We hope that the committee will execute its mandate at the earliest, and this change will constitute a major reform for the Indian telecom sector.

The elimination of excise duty on bio-fuels will aid the expansion of telecom services into population centers where the supply of electricity is either erratic or absent.

Handset Makers
In India, handsets prices have already touched rock bottom with cellular operators bundling the handset and mobile connections for a price as low as Rs 1,000-1,500. This might have forced the finance minister not to review the tax on handsets, and this has invited the ire of the Indian Cellular Association.

Pankaj Mohindroo, president, Indian Cellular Association, says, "Our recommendations in promoting mobile accessories, parts, components and after sales industry have not received due attention. ICA requests the finance minister for immediate and urgent steps to phase out central sales tax, which will give the Indian trade and economy a new velocity."

Amit Sharma, country president, Motorola India, says, "The budget is somewhat disappointing for the telecom sector because the issues of license fee burden has not been addressed. However, the push for rural telephony is welcome."

Broadband
Though rural focus may spiral the growth of rural broadband across the country, the broadband sector did not welcome it.

According to Raju Vegesna, chairman and CEO, Sify, "Overall a growth budget focused on development of agriculture, better standards and quality of life in rural areas, urban infrastructure, power generation, investments, health, education and vocational training. The government has stayed the course to ensure socio-economic development and continued high growth, instead of resorting to populist measures. The measures to encourage small-scale industries, as well as venture capital funds being given a pass through status are also welcome steps towards ensuring continued high growth of the economy."

The focus on central and state e-Governance programs will benefit everyone with better governance that is transparent, efficient and citizen friendly. So, it is a little disappointing to see that, despite the need to ensure that more citizens have access to the Internet to participate in e-Governance, cyber cafes and Internet access services have not been made exempt from service tax. Such a measure would have given a boost to the government's efforts to rapidly increase Internet penetration and use, as well as contributed to the success of e-Governance services being rolled out, Vegesna says.

Rajesh Chharia, president, ISPAI, says, "We could not find any specific recommendations with regard to Internet/broadband/IT Industry. The budget does not talk about the growth of broadband in the country nor any incentive for the industry to roll out telecom and broadband services in remote and rural areas: Keeping in view that the Hon'ble Minister of Communication & IT has declared year 2007 as "Broadband Year" and set a target of 20 mn broadband connections by 2010. We have just over 2.15 mn broadband connections. We hope that the DoT committee will form soon and consult various telecom/Internet associations to streamline taxation regime.

ITeS
The ITeS industry is expecting a substantial growth in years to come. The SEZ scheme may fuel large-scale industrial growth in nooks and corners of the country. "Obviously, it will help creation of infrastructure, employment and education across the country," says Hanuman Tripathi, managing director, Infrasoft Technologies.

Tripathy adds that the tax break IT industry enjoyed for the last 8 years has created a huge exporting industry out of India, generated large employment of educated youth in the country, created world-class infrastructure in the country and made India one of the most trusted and powerful brands in the international community. The government with tax collection in lieu of would have not been able to achieve these objectives even remotely. Thus, IT/ITeS industries must continue to get the tax break under section 10A to meet its large export targets in the coming years. This is especially relevant as in the last two years India is facing the threat of becoming uncompetitive due to rising salary costs and sky rocketing cost of real estates, in all cities of the country. On the other hand, the countries which have silently worked in creating competitive English knowing manpower, infrastructure and tax reforms are all becoming a threat to India's IT supremacy; be it China or other South East Asian countries or Israel or countries in EEU block and Latin American countries, he says.

According to Karthik Shekhar, general secretary, UNITES Professionals, India, "We welcome the budgetfrom the BPO perspective. Women workers in BPO will be able to save more with exemption limit being raised to 1.45 lakh; the sector would see more investment as tax on DoT may change and telecom Taxes would be bundled, money would be spent on better roads; instant food mixes, which are stable consumption for BPO workers, are expecting price reduction as no excise is levied on them; social security scheme for unorganized workers is most welcome which constitutes 95% of working population in India today."

Commendable Position
Despite challenges, the telecom sector has surpassed its own targets and reached a commendable position in the global telecom market. Though Budget 2007 has not provided any major direct relief to the sector, the growth in the Indian infrastructure, agriculture and education sector will bring additional fillip to sustain the already spiraling growth and achieve new horizons.

Baburajan K
baburajank@cybermedia.co.in