Ronnie05's Blog

Indian Telecom Story (part XI): Return to grey?

Posted in Industry updates by Manas Ganguly on July 3, 2009

Maharashtra state government has upped the Value Added Tax on mobile phones from 4% to 12.5%. This translates to an increase in tax revenues for the government from Rs.12 crore per month to Rs.36 per month. Notably, the Indian Cellular Association (ICA) is displeased and so are the mobile vendors.

This move would open up the grey markets while hitting business and employment in the organized sector. It is noteworthy that the boom in the organized device sector was a result of a reduction of high tax regime in 2002. This move is also being cited as a classic case of not understanding that this is a global market and it takes less than a dollar to transport mobiles across continents. This is a very short sighted move, which would be self defeating in the long run and will reverse the growth in the industry. Since, the organized telecom as an industry has been a cash cow for the government, hurting the revenues and businesses of the organized players would hurt the long term socio economic development of the state as well.

Such counter-productive policy making will negatively impact private enterprise and open markets’ and the very essence of economic growth in the long term in favour of short term subsidy for electoral and populist measures. Our state and our cities are ranked low by international businesses in terms of ease of doing business. Our growth planners, still need to learn from the Chinese model of state sponsored private industry.

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