FE Editorial : F1 economics

Dec 14 2012, 01:08 IST
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SummaryGiven its Rs.2,45,000 crore debt and the ruling regime’s desire to give out freebies—apart from the computers promised in the election, R1,650 crore of farm loans were waived off a few weeks ago—despite having a budget constraint, it’s not surprising the state has set up a Resource Committee to find ways to drum up some revenues.

UP benefits from tax concessions, not just Jaypee

Given its Rs.2,45,000 crore debt and the ruling regime’s desire to give out freebies—apart from the computers promised in the election, R1,650 crore of farm loans were waived off a few weeks ago—despite having a budget constraint, it’s not surprising the state has set up a Resource Committee to find ways to drum up some revenues. One of the things the committee has recommended is to take away the entertainment tax exemptions given to the Jaypee group’s F1 Buddh International Circuit. As FE reported, the head of the committee has said since only the well-heeled went to the races, they could afford to pay the tax.

This is missing the wood for the trees. Jaypee’s is one of the first Indian sporting facilities—think Commonwealth Games facilities—where the global organisers have said it was world class. The world over, concessions given to F1 tracks are more than made up by the extra business it helps drum up. Think of the tourism earnings from 90,000 spectators for an F1 race, more so if some of them decide to combine it with a visit to the Taj or other tourist spots. Apart from the F1 race, you’ll have the World Superbike Championship in March, the first time the 25-year-old event will be held in Asia. In the case of Sepang, 100 km from Kuala Lumpur, the F1 track has become a magnet for automobile/tyre firms who are looking for testing facilities. Jaypee is trying to get global automakers to test their cars in India instead of the snow-bound Europe—Ferrari has already booked the track twice for 9 days each, MRF has done this once. If Jaypee is able to get the track booked for, as in Sepang, 250 days a year, that’s a lot of local business to be generated.

Apart from the fact that the state is not taking advantage of a world-class facility it has, any change in tax policy has to be with prospective effect—hence the outcry over the budget’s retrospective tax, which the new finance minister is now trying to roll back. In this case, when the Jaypee Group spent R2,000 crore on the project, it had an assurance of exemption from entertainment taxes. Getting rid of these changes the economics of the project and is easily challenged in court. The new regime in UP can argue that there was favouritism by the Mayawati regime. That may or may not be true, but when a proposal has the stamp of a duly elected government, it has to take responsibility for it. That is why, when the Supreme Court ruled in favour of cancelling the 2G licences, the central government decided to refund the money paid by the firms whose licences were cancelled. This is what Tata Group chairman Ratan Tata had in mind the other day when he said that if government approvals were taken lightly, people would take India lightly.

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