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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