Union Budget 2015: FM stresses on Digital India, no major reforms in telecom

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Devika Ghoshmoneycontrol.com

While there weren't any big bang announcements with respect to the telecom sector in Union Budget 2015-16, finance minister Arun Jaitley said the government was making good progress towards the Digital India drive.

"The National Optical Fibre Network Programme (NOFNP) of 7.5 lakh kms, networking 2.5 lakh villages is being further speeded up by allowing willing states to undertake its execution, on reimbursement of cost as determined by Department of Telecommunications," he said.

Andhra Pradesh is the first state to opt for executing the NOFN on its own and the telecom department will reimburse the cost for the same, Jaitley said.

Jaitley has tried to give a boost to the sector through some relief on the indirect tax front - HDPE for use in the manufacture of telecommunication grade optical fibre cables have been reduced from 7.5 percent to nil under customs duty.

As expected, the government has made a provision to impose ‘Swachh Bharat Cess’ on certain or all taxable services. Though there is no clarity on amount or date of implementation. If implemented, it will be negative for the sector.

Credit Suisse estimates the combination of Swachh Bharat cess and service tax (which has been raised to 14 percent) together to negatively impact EBITDA by 5-7 percent.

Considering ‘internet for all’ is not only something that Mark Zuckerberg talks about, it is also a dream of Prime Minister Narendra Modi, a lot of reforms or announcements were expected pertaining to the telecom sector.

Expectation:

The telecom sector had hoped Jaitley will relax spectrum trading or sharing norms - facilitate much-required industry consolidation - and take a call on making more spectrum available. The sector also expected that additional spectrum would be made available at a price that can make mobile services affordable.

The industry was also hoping that Jaitley will announce rationalization of taxes and levies.

However, contrary to the wishes of the sector, a Swachh Bharat cess - expected in the 0.02-0.05 percent range – was expected to be levied on telecom services and the upcoming spectrum sale.

Also, at the moment, the sector pays service tax at 12 percent. But under GST, the rate will be higher, which in turn may increase the cost of telecom services.

According to a CARE Ratings report, the industry also expected clarity on rules regarding exemption of custom duty on telecom goods manufactured in SEZs and other similar matters.

State of the industry

According to UST Global, there will be huge machine-to-machine (M2M) growth in India in 2016-17 on the back if 3G and 4G services. There is also scope for growth of M2M services in the Centre’s Rs 7,000-crore 'Smart City' programme.

A GSMA study shows smartphones accounting for two out of every three mobile connections globally by 2020 and India is all set to become the fourth-largest smartphone market in the world. Further, according to the study, broadband services user-base is expected to grow to 250 million connections by 2017. GSMA also expects increased mobile broadband penetration, with over 250 million on either 3G or 4G by 2017. It also expects the industry to generate about 4.1 million additional jobs by 2020.

July Budget

• In his July Budget, the government had estimated Rs 45,471 crore, including licence fee and spectrum usage charge and upfront auction amount.

• Imposed basic custom duty at 10 percent on specified telecommunication products that are outside the purview of the Information Technology Agreement.