Editorial – India’s Royalty Fee Proposal: A Big Step in Wrong Direction

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Just when it looked as though India was getting ready to open up more of its growing satellite services market to foreign operators — if only in bits and bytes — now comes a misguided proposal to hit these companies with a 10 percent royalty fee on revenue. Most onerously, the tax, if implemented, would be retroactive to 1976, thus putting some satellite operators 36 years in arrears.

The measure, part of a broader deficit reduction bill now before the Indian parliament, does more than reinforce the satellite market protectionist policies that have long been a thorn in Indo-U.S. trade relations: It’s punitive to companies that have done or seek to do business in that country. The only mitigating factor is the fact that access to India’s market has been so restricted over the years that the losses foreign operators would incur if the measure passes are proportionally limited.

Today non-Indian operators typically are allowed only to provide links between India and other countries, and contracts for these services must be negotiated through the Indian Space Research Organisation (ISRO), which as builder and operator of the domestic Insat satellite system also is a competitor. ISRO not only determines what services outside operators can provide — the Insat system gets right of first refusal — it also charges a brokering fee, which goes into its own coffers.

India has been reprimanded by the U.S. Trade Representative (USTR) for its protectionist policies in satellite services, which persist even as it seeks access to the U.S. commercial launch market. In its “2011 Section 1377 Review on Compliance with Telecommunications Trade Agreements” released last April, the USTR, citing industry groups, said there continues to be a “lack of transparency” in the satellite regulatory environment in India as well as China. It characterized as “problematic” India’s insistence that outside satellite operators sell capacity through ISRO.

Recent years have brought glimmers of hope that India might change its ways. In 2010, for example, the Telecommunications Regulatory Authority of India threw its support behind a relaxation of foreign ownership restrictions on domestic satellite television services. Meanwhile, skyrocketing demand for satellite television services in India has far outstripped ISRO’s ability to keep pace via the Insat system, a situation that has been compounded by recent Indian satellite and rocket failures. This has led some outside companies, including Luxembourg-based SES, the world’s second-largest commercial satellite operator, to invest in the market, New Delhi’s protectionist history notwithstanding.

The royalty fee proposal, if adopted, would discourage such investments while sending a strong signal that India is either myopic or simply more interested in shielding its domestic satellite industry than in meeting the telecommunications needs of an increasingly upwardly mobile population. Foreign satellite operators will find it even more difficult to compete with Insat, while the limited services they are allowed to provide will come at a higher cost to Indian consumers.

The commercial satellite industry should come together to educate Indian legislators and policymakers on why it’s a bad idea to saddle Indian consumers with unnecessarily high prices that will have a depressing effect on the overall market. Meanwhile, government organizations like the USTR need to keep the public pressure on, while making it crystal clear that Indian access to the U.S. commercial launch market is not in the cards absent measurable progress on the satellite services issue.

India’s economy has grown dramatically over the past two decades as it has opened more of its markets to the rest of the world. It is past time for New Delhi to take those reforms into its satellite services sector.