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Telecom cos give mixed response to Budget

Some Indian telecom companies welcomed a cut in customs duties on capital goods, but others said they wanted more action to boost growth.

business Updated: Mar 01, 2003 12:04 IST
Reuters
Reuters
PTI

Some Indian telecom companies have welcomed a cut in customs duties on capital goods, announced in the annual budget on Friday, but others said they wanted more action to boost growth.

Finance Minister, Jaswant Singh said the government would slash customs duty on telecoms equipment used to roll out high-end phone services to 15 percent from 25 percent. Import duty on optic fibre cable has been cut to 20 percent from 25 percent.

"The reduction in duty on optic fibre cable and capital goods is a good move for the entire value chain," said Sunil Bharti Mittal, chairman of Bharti Tele-Ventures Ltd, India's largest cellular services provider.

India's fast-growing telecoms sector was opened up to competition in the early 1990s and has attracted many global telecoms giants, with its low penetration level of telecom services. Only 4.5 per cent of the population are consumers of such services, compared with a global average of 15 per cent.

There are more than 11.2 million cellular users in India, and the number is expected to surge to 120 million by 2008, making it a big draw for global firms facing relative saturation in their home markets.

But many proposals, such as a cut in customs duty on handsets and hiking the foreign direct investment limit in the sector to 74 per cent from the present 49 per cent, did not find their way into the budget, disappointing some in the industry.

"Its a lacklustre budget," said Pankaj Mohindroo, president of the association representing handset makers.

A customs duty of 14.4 per cent charged by the government on legally imported handsets has resulted in a flourishing "grey" market for smuggled handsets that account for almost three quarters of annual sales.

Indian states also levy sales tax on mobile phones over and above the customs duty, which further raises the price of a legally procured handset in comparison with a smuggled one.

"It was only pertinent that the duty structures on cellular handsets were rationalised such that legal handsets become accessible to the common man," Mohindroo said.

Although Singh did not raise the FDI cap in the sector, some industry watchers remained optimistic after the proposal to hike the limit won approval from a ministerial panel.

"The industry is looking forward for a final approval from the cabinet after the FDI proposal was cleared by the group of ministers," Akhil Gupta, joint managing director at Bharti Tele-Ventures, 16 per cent owned by Singapore Telecommunications, told Reuters.

"We believe that it should happen in the next week or two."

First Published: Mar 01, 2003 12:04 IST