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Budget belies expectations
Budget 2000 was as insipid as they come for
the television industry. Finance minister Yashwant Sinha
did not fulfill the expectations of industry professionals
by putting entertainment (read broadcasting) on a par with
the infotech business. He cold-shouldered their proposal
to allow them to divest just 10% equity like infotech stocks
apart from giving them the benefits provided to the infotech
sector. The industry will now have to look for succor from
the Broadcasting Bill draft which information and broadcasting
minister Arun Jaitley is supposed to present to Parliament
in March. What Sinha however handed out were sops of a different
kind: lowering of customs duties on cinematographic equipment
from 40 per cent to 25 per cent and on basic film and jumbo
rolls from 50 per cent to 5 per cent. This is expected to
buoy both the film and studio businesses.
The increase in the foreign institutional investor limit
from 30 per cent to 40 per cent is expected to benefit mostly
the infotech and media and entertainment industries as these
have emerged as darling stocks of the FIIs in the past six-seven
months.
Sinha attempted to give a boost to the infotech business
by reducing customs duties on finished computers and even
components. He reduced customs duty on microprocessors,
memory devices CD Roms, ICs and Display tubes from 15 per
cent to 10 per cent. He additonally cut customs duty for
computers from 20 to 15 per cent, motherboards 20 to 15
per cent, floppies 20 to 15 per cent.
A negative impost announced that was expected to hurt software
companies may not end up hurting them so much after all.
The tax burden on them will end up at around 3% thanks to
the announcement that 20 per cent export income of all companies
would be taxed.
Some attractive dollops were dished out to the Venture capital
firms too to encourage them to crop up. Among the measures
announced were:
* SEBI to be the nodal agency for venture capital funds
to encourage entrepreneurs.
*One time tax of 20% on venture fund investor and undistributed
income.
* No approval of venture capital fund by tax authorities.
* Venture Capital Fund income tax free if distributed within
the period set by SEBI.
This is expected to give a boost to the Dot com sector as
VCs may be encourage to set up operations in India as against
the overseas subsidiaries they have set up so far. There
were some initiatives on the telecom front: Customs duty
on fibre optic cable has been slashed from15 per cent to
5 per cent. This will benefit cable TV companies too and
it may encourage them to go in for fibre optics for their
trunk lines. Customs duties on cellular phones has been
reduced from 25 per cent to 5 per cent. This is expected
to encourage the spread of handphones to even lower income
classes.
An impost that will likely hurt is the increase in excise
on fast moving consumer goods from 8 per cent to 16 per
cent. This will lead to a hike in prices of products by
the FMCG majors which in turn could affect their performance
in an already competitive market. The stock market expects
growth to slow down further and their revenues to reduce.
This in turn could affect their ad expenditures as advertising
is what companies first cut down. This could lead to more
cautious spending on television advertising which in turn
could affect the performance of certain television companies.
An announcement which could work in the favour of some infotech
and media firms is the increase in the ceiling on automatic
approval for overseas investment by Indian companies from
$15 million to $50 million. One may see them go on an acquisition
spree.
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