The private FM radio industry has complained for years, and with good cause, that the government has never helped them. The recent few months have promised a glimmer of change and radio players are hoping that 2014 will not be another year in the long annals of false promises.
With the Phase III transition and hence a new stage in private FM expansion in India on the cards, it is understandable that FM players expect policies that will allow a smoother transition to Phase III and pro-growth policies from the Union Budget.
For example, one of the chief issues is the case of FDI, which radio operators feel should be on par with other mediums. In fact, this is an issue that has been consistently raised by radio operators; questioning a different set of rules for radio as compared to other mediums (a case in point being the issue of news broadcast).
The current FDI level is set at 20 per cent. TRAI, in its set of recommendations, released earlier this year, suggested that this should be increased to 49 per cent.
“The Phase III policy when activated allows 26 per cent. The industry will be happiest with 49 per cent without FIPB approval. Above 49 per cent is not likely to be accepted by the Govt. Already the delays in activating Phase III are huge and financial investors directly correlate sectoral risk with the delays,” said Vineet Singh Hukmani, MD of Radio One.
Ashwin Padmanabhan, National Head, 92.7 BIG FM also said that a relook at FDI was important. When asked whether the industry would be happy with the TRAI suggested percentage of FDI, he said that there was no reason why non-news FM should not be allowed 100 per cent FDI. “We can understand if the government does not want to allow FM channels that broadcast news to have 100 per cent FDI but non-news FM should be allowed that. FM radio needs whatever applies to other mediums,” he said.
Prashant Pandey, MD & CEO of ENIL, gave a simple explanation. According to him; between Phase III auctions, renewal of Phase II licenses and auctions resulting from channel spacing halving to 400 KHz, broadcasters will need to pay up anywhere from Rs 3000 to 5000 crore. “For the FM radio industry which has been bleeding for long, this kind of investment is impossible. Foreign players on the other hand might be keen to enter the Indian market, and may be willing to invest. So opening up FDI to 49 per cent is a good idea,” he said.
Even before the issue of FDI, the radio industry still waits for the government to announce its decision on the TRAI recommendations. Though it has been understood that the government has all but agreed to the recommendations, a formal announcement is still pending, something which is worrying radio players. Hukmani said, “ A clear announcement by the ministry will allow fund raising to commence. This is long overdue. Secondly, like the telecom sector, radio should be allowed to raise debt in the form of ECB, which will reduce interest burden on players and allow Phase III to be successful.” He further added that custom duties on transmitters and other import items must also be reduced; while multiple point taxes should be reduced with special sops for the radio industry so as to help a 15 year plan.
Speaking of taxes, an issue raised by FICCI in its pre-budget memorandum to the government was of lifting TDS on discount offered by radio stations to advertising agencies. The issue arises because the tax department has raised demand on certain radio broadcasters by alleging that these discounts are commission subject to TDS @ 10 per cent under section 194H of the Act, according to FICCI. FICCI had argued that the cash traps on account of these unsustainable tax demands are crippling the finances of broadcasters. When asked about how relevant this issue is, Pandey replied, “Absolutely, this TDS issue is wrong.” Hukmani also suggested that the TDS must be removed on discounts as it is not income but a cost to the radio operator. “How can tax be charged on a cost element?” he questioned.
However, Padmanabhan was of the opinion that the issue is not that huge as many operators have moved to net billing (as is the case in TV).
Apart from these expectations, when asked about other issues that the budget should address, Pandey said, “The government should recognize that FM radio is a distressed sector. All through the Phase II period, broadcasters have lost money. Now with Phase III coming up, broadcasters are in a trap. They want to bid, and grow, but their financials are so weak that they won't be able to do a good job of it. I wouldn't be surprised if many current broadcasters shut down soon.”
According to him, the solution is if the government provides tax holiday of five years for new capital investments made under Phase III, reduce custom duty on capital equipment for radio broadcast to 4 per cent and implement GST so that all indirect taxes paid by broadcastes (like VAT) can be set off against Service Tax credits. He also added that the government should declare FM radio as a priority sector so that bank lending to the sector can qualify under Priority Sector spending rules.