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Wanted - a budget full of sweet accidents

It doesn’t take much to kick-start an entire industry. More than a dozen years ago, the Indian film industry was a basket case.

Then, the Maharashtra state government gave the making of multiplexes a 10- year tax holiday. Their success created a trend of sorts and multiplexes sprung up even in states that did not have tax holidays.

Within five years, half a dozen firms started seeding small single-screen theatres with digital equipment in their hurry to get more screens going.

Finance Minister Arun Jaitley can consider rationalising entertainment tax across states, and also declare the building of theatres, digitising of TV homes or theatres, or laying of broadband cable as infrastructure for communication. This would give these capital- intensive activities a tax breather. Pic/PTI
Finance Minister Arun Jaitley can consider rationalising entertainment tax across states, and also declare the building of theatres, digitising of TV homes or theatres, or laying of broadband cable as infrastructure for communication. This would give these capital- intensive activities a tax breather. Pic/PTI

This brought audiences back to the theatres, helped raise ticket prices and push money back into the business. It unleashed creativity in the industry, with unknown talent bursting out of the woodwork almost every day. What’s more, it has grown by over five times its size since then.

The first time FM radio was privatised was in 1993, when private companies were offered slots on All India Radio’s (AIR’s) FM channels. This was successful in getting listeners, but for some reason the government pulled the plug on it in 1998. In 2000, it auctioned 108 stations and made a lot of money.

At that time there was an in-built escalation clause in the licence fee. This then left many of the bidders with very little to run the stations, so they reneged on the licences.

Finally, only 21 radio stations were launched and they kept making losses till the ministry of Information and Broadcasting saw the light. In 2006 in the second round of licensing, the auction process was rectified and a revenue share instead of licence fee came into play.

Since then, private FM radio has blossomed. India now has 242 private FM stations, in addition to the 326 AIR ones. Together, they made Rs 1,460 crore in advertising revenues in 2013. Most radio operators are looking forward to bidding for more stations in the third round of licensing later this year.

Both these decisions to give multiplexes a tax holiday in one state and to shift to a revenue share in radio were the catalyst for these struggling industries to break free and blossom. These tell you the story of what a single good decision by the regulator or policymaker can do.

However, these decisions are so few and far in between that they seem like happy mistakes. Could the finance minister then have made a few more of these, especially since his ministry holds the key to many things that could facilitate growth in India’s Rs 83,000-crore media and entertainment business?

For starters, why not rationalise entertainment tax across states? It ranges from zero to 60 per cent, creating an anomaly in the way growth happens. So, some states have very little film infrastructure while others get more investment into it. And that brings us to the second thing.

Why not declare the building of theatres, digitising of TV homes or theatres, or laying of broadband cable as infrastructure for communication? This would give these capital-intensive activities a tax breather.

That, in turn, would really unleash a huge amount of money in building the world-class infrastructure that watching films or plugging into education needs in the world’s second most populous country.

Lastly, why not prune all the double taxation that most segments of the industry carry? For example, DTH operators pay entertainment tax (state subject) and service tax (central subject).

There are dozens of such seemingly minor things that can make doing business in this sector easier, more profitable and push prices down for consumers. It could, in the long run, unleash crores of rupees in increased taxes and thousands of jobs, just like it has in the film and radio business.

Instead, the finance minister has extended service tax to online and mobile advertising, though print, a much larger medium, continues to remain exempt. For now, then, the sweet accidents that could propel the Indian media and entertainment industry to another level remain elusive.

The writer is a media specialist and author. Follow her on twitter at http://twitter.com/vanitakohlik

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