CALCUTTA, India, March 18 (UPI) -- Never before has the Indian government budgeted money for the Indian film industry, but there is always a first time.
Perhaps to stick to its recent promise of opening up India like it has never been before, the Bharatiya Janata Party-led government announced last week it would be entering the world of films to bring the film industry into the limelight.
In the jamboree organized by an industry association, Federation of Indian Chamber of Commerce and Industries, Union Minister for Information and Broadcasting Sushma Swaraj said, "We are actively pursuing simplification of visa rules to be followed by foreigners coming into India to shoot films. Co-production agreements with other countries, especially those which are rich in technology and capital, are also in progress."
She added that a new plan for the promotion of Indian films had been introduced in the country's 10th five-year plan, to start April 2003, and a token amount had even been earmarked for this purpose for the 2002-3 fiscal year. According to Swaraj, the government has started talks with the Canadian government for a quid pro quo relationship between the two countries that will make use of each other's resources.
For the Indian entertainment industry, particularly the film industry, which in local parlance carries the nickname of Bollywood, the latest development is indeed recognition of the potential it offers. Industry sources strongly believe that India's entertainment sector can match the foreign exchange earning capacity similar to the country's software industry.
"After IT, entertainment is the sunrise sector for India,'' said FICCI president Rajendra S Lodha.
According to Lodha, India is the largest producer of films in the world. The market is expected to grow by 15 percent to 20 percent annually in the next five years with television emerging as the fastest growing segment, followed by films.
"We already have the expertise in software, cultural wealth, creative genius, musical tradition and a potential market," said Lodha. "The Indian entertainment industry is valued at $3.6 billion and Arthur Andersen has projected that it will grow fourfold by 2005," he added.
But despite being the world's largest, the Indian film industry is plagued by a lack of adequate institutional funding, proper security cover, a need for corporatization, rationalization of the entertainment taxation system and effective action against piracy, industry sources say.
"The average investment on movies in the United States is $13 to 14 million while in India it is as low as $0.5 million," said Lodha, quoting an industry study by strategic consulting firm Arthur Andersen.
According to the study, high entertainment tax is the biggest reason for the industry's maladies. Industry sources say that heavy taxation, which at times touches 50 percent of a movie-hall ticket price, often leads to under-declaration.
"Taxation needs to be rationalized for generating growth in ticket sales and government collection, " said the report.
For Bollywood, however, taxation does not seem to be the primary concern.
"We believe that the primary impediment for film production emanates from lack of bank financing, unorganized structure of production, and distribution," revealed a study by the Dutch bank Rabobank, which FICCI engaged to analyze the structure and financial perspective of the Indian film industry.
Bollywood is going through yet another paradigm shift. Following global practices, the government is also trying to facilitate corporatization of the industry with the help of a few state-owned financial institutions.
For instance, The Industrial Development Bank of India has announced it plans to form a consortium with commercial banks and institutions to extend film financing.
"We have already initiated talks with Bank of India for the consortium, and are examining five proposals worth $2.06 million," said P. P. Vora, IDBI chairman and managing director.
The government also is chipping in. Demonstrating its commitment to its recent fast-track liberalization promises, the government last week announced a new foreign direct investment policy for the sector allowing automatic permission for 100 percent of foreign investment. Thus a foreign investor will no longer need permission from the government for financing and producing films in India.
Until now, foreign investors not only had to seek permission for financing films, which was given after extensive scrutiny, but also were subjected to restrictions regarding the extent of their investment activities. For instance, permission for producing films did not automatically come with rights for other activities like distribution and music rights. All those restrictions have now been lifted.
Interestingly, the positive impact of the latest liberalization moves is already being felt. Twentieth Century Fox India, for instance, announced late last week it is considering entry into Indian film production and rights acquisition. Until now, Fox India was merely involved in film distribution.
"Production of Indian films and acquiring film rights is a part of the automatic growth plan for Indian market," said Fox India's managing director Aditya Shastri, adding that Fox India's Bollywood plans would extend to worldwide distribution of Indian films as well.