Budget 2018: An Excellent Overall Exercise But, For Telecom , ‘Yeah Dil Maange More’…

By T. V Ramachandran

The great annual Union Budget exercise for 2018 got over 2 days ago. The Finance Minister has effectively addressed most of the key economic challenges and priorities before the nation. Given the daunting circumstances and the enormity of the task before him, the FM’s performance is truly praiseworthy and hence there is widespread acclaim for his approach and budgetary actions.

However, for Telecom, it is somewhat of a mixed bag and there generally is a view that the nation would have benefited from a little more attention to this crucial economic sector.

Pros

At the outset, the “excellent” parts need to be fully acknowledged and lauded. Enhanced reach/availability is one of the topmost priorities for the nation if we are to improve the economic state of the masses and attain the vision of Digital India. In this vital area, the Budget has announced a couple of unique and highly commendable actions.

Firstly, the Government has announced its decision to help set up 500,000 Public WiFi Hotspots so that the general public can easily access broadband and download desired information/documents cost-effectively. This will be a stupendous benefit for the public.

Today, with less than 35000 such hotspots available, the proposal represents a great 15-fold increase, - a truly wonderful prospect. Secondly, keeping an eye on the future, Government has also announced support for creating a test bed for 5G at IIT Madras, signalling its intent and commitment to harness the huge benefits from the Fifth Generation Technology that would provide ubiquitous ultra broadband and connectivity. While announcing these developmental actions, Government has also kept a firm eye on the importance of Optic Fibre Cable for carrying data and declared sanction of Rs 10,000 crores for BharatNet project, the same amount as last year.

Cons

The telcos are understandably anguished at the lack of any measures in the Budget to reduce their enormous burden of duties & levies. However, in all fairness, they also need to understand and appreciate that this is an area for fundamental Policy action and that there is probably serious work in progress on this front in the forthcoming NTP 2018. But what Broadband India Forum (BIF)had sought was reduction the GST on telecom service from the anomalous level of 18% to maximum 12%, in line with what already applicable to mobile phones. Why this inconsistency? The latter cannot exist without the former service and the existing situation is anomalous and adversely impacting the end-user as well as the required rapid proliferation of broadband connectivity. This is quite disheartening.

The Hon’ble Finance Minister has also regrettably erred in hiking the import duties on finished mobile phones from 15% to 20%. This action has apparently arisen from the expectation that this would boost Make in India. However, a simple examination of data on imports and exports and on value addition in Indian ‘manufacture’ clearly reveals that even the here-to-fore duty of 15% has been adversely impacting the cause of genuine Indian manufacture in the sense that true value addition remains very low at about 10% and only screwdriver technology of assembly of imported components flourishes.

In this process, the import bill for mobile phone components has risen from $1400 million in 2014 to $6800 million in 2016 to $9200 million in 2017 to expected $11,400 million in 2018, - a whopping 8-fold or 800% increase in 4 years. This, then, is surely not helping the cause of ‘Make in India’ and, on the contrary, is sharply inflating the import bill of the country. This has happened because the Government has missed adhering to its own Phased Manufacturing Plan (PMP) that had envisaged imposition of import duty on Printed Circuit Boards (PCBs) for mobile handsets which constitute 50% of the Bill of Materials (BOM).

If this had been done, it would have encouraged value addition in the local assembly. Not adhering to the PMP has now disadvantaged those local manufacturers who have made sizable investments to increase value addition, in the expectation that imported PCBs will attract duty from April 2018. Understandably, such manufacturers are very upset and the country suffers in value addition and unwanted imports. This needs urgent review and correction.

To support Make in India, from BIF, had recommended GST-based measures to incentivise and enhance value addition in local manufacture and thereby give an impetus to serious research & development activities in India. This merits serious consideration.
BIF had also pointed out to achieve ‘Digital inclusion for all’, broadband proliferation in rural and remote access areas is a great necessity and, to achieve this expeditiously, the Government should, through a Budget provision seek to facilitate VSAT services through suitable USOF or other allocations.

Last but not least, given our 5G ambitions, India should target becoming a Fibre Capital of the world through leveraging our huge surplus capacity in OFC manufacture. For this purpose, a suitable package of economic measures could have been considered in the Budget exercise.

Budget 2018 is a great product that seeks to provide enhanced inclusive prosperity and all kudos to the Hon’ble FM and his team for this. However, to achieve optimum results, a little more needs to be done and the Hon’ble FM’s kind support is requested for the points made above.

(The author is Hon Fellow, IET (London) and President, Broadband India Forum)