IMPACT OF ENTERTAINMENT ON INDIAN ECONOMY

NAME OF THE STUDENT:

BURIDI DAALU RAJA ASHISH

ROLL NO.: 19LLB027

SEMESTER: 2

NAME OF THE PROGRAM:

5 YEAR (B.A., LL.B. / LL.M.)

NAME OF THE FACULTY MEMBER:

PROF. ABHISHEK SINHA

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM,
VISAKHAPATNAM – 531035, ANDHRA PRADESH

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ACKNOWLEDGEMENT:-
I w0uld like t0 express my gratitude t0 “PROF. ABHISHEK SINHA” wh0 have given me the
g0lden 0pp0rtunity t0 d0 this w0nderful Research paper 0n the TOPIC “IMPACT OF
ENTERTAINMENT ON INDIAN ECONOMY”, which als0 helped me in d0ing l0t 0f research
and thr0ugh which I came t0 kn0w s0 many new things.

Sec0ndly, I w0uld als0 like t0 thank my friends wh0 als0 helped me a l0t in c0mpleti0n 0f Research
paper within the limited time.

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 ABSTRACT
India’s entire media and entertainment (M&E) industry represents under 1% of its GDP. This
scale often provides the lens under which the industry is viewed. This report, which focuses on
the film, television, and OTT industries (which represent over half of the total M&E industry),
highlights that the economic activity generated by these industries runs deeper, just like the bulk
of an iceberg remains hidden below the surface. On the surface, the television, film, and OTT
industries (together referred to in this report as “creative industries”) are estimated to have a
gross output of INR 101,359 cr (US$ 15.6 bn), and to employ 7.4 lac (741k) people. This is the
direct impact, which is easily visible. Scratch the surface, however, and you would discover that
these industries stimulate other sectors in the economy, producing a total gross output (direct +
indirect) of INR 216,677 cr (US$ 33.3 bn), and generate a total employment of 23.6 lac (2.36
million).

These estimates are conservative. The iceberg effect reveals much greater economic activity. The
indirect impact values above have been estimated through input-output tables, which identify
130 different sectors and their inter-relationships. Given the relatively small scale of India’s
media and entertainment (M&E) industry on the surface, the industry is tagged to a sector
labelled “other services” in the country’s input-output tables. While the “other services”
classification includes recreation, entertainment, radio and television broadcasting services, it
also includes sanitary services, and “services not elsewhere classified”. The estimates of indirect
impact are diluted due to the presence of several unrelated sectors in the same bucket. For
instance, sanitary services are likely to be driven as a consequence of growth in other sectors, as
against a film, which will drive growth in other sectors. While there will be multiplier effects in
both cases, a film is likely to have a significantly higher indirect impact.

India’s entire media and entertainment (M&E) industry represents under 1% of its GDP. This
scale often provides the lens under which the industry is viewed. This report, which focuses on
the film, television, and OTT industries (which represent over half of the total M&E industry),
highlights that the economic activity generated by these industries runs deeper, just like the bulk
of an iceberg remains hidden below the surface. On the surface, the television, film, and OTT
industries (together referred to in this report as “creative industries”) are estimated to have a
gross output of INR 101,359 cr (US$ 15.6 bn), and to employ 7.4 lac (741k) people. This is the

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direct impact, which is easily visible. Scratch the surface, however, and you would discover that
these industries stimulate other sectors in the economy, producing a total gross output (direct +
indirect) of INR 216,677 cr (US$ 33.3 bn), and generate a total employment of 23.6 lac (2.36
million).

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 TABLE OF CONTENTS

1. SYNOPSIS 6
2. INTRODUCTION 7
3. TOTAL ECONOMIC IMPACT 8
4. TOTAL ECONOMIC IMPACT: ECONOMY 10
5. TOTAL ECONOMIC IMPACT: EMPLOYMENT 10
6. KEY GROWTH DRIVERS 11
7. BARRIERS TO INVESTMENT 13
8. FUTURE OUTLOOK 16
9. CONCLUSION 22
10. BIBLIOGRAPHY 22

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 SYNOPSIS
INTRODUCTION: The media and entertainment industry’s economic impact on the country’s
GDP extends beyond just direct revenue. There are multi-faceted economic implications of the
industry on the overall economy. The movie industry, for instance, will call upon entertainment
lawyers when drafting contracts; sets will require electricians, carpenters and painters to help put
on shows. In transactions such as these, the media industry has an indirect economic impact on
other industries beyond the direct revenue generated. The core sectors therefore generate jobs,
wages, and output for the suppliers, professionals, and contractors they rely on in the course of
business.

OBJECT OF THE STUDY:

The object of the study is to understand:

 Impact of Entertainment on Indian economy

 Different forms of Entertainment

SCOPE OF THE STUDY:

 The scope of study is limited to the Impact of Entertainment on Indian Economy

SIGNIFICANCE OF THE STUDY:

 The study helps to understand the role of Entertainment in the economy

LITERATURE REVIEW:
Information is taken from secondary sources like books, articles, online sources.

RESEARCH METHODOLOGY:
The research methodology is doctrinal type of research.

TYPE OF RESEARCH:
The research is descriptive, and explanatory

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INTRODUCTION:
Introduction: Direct, indirect, and induced impact

The economic impact of the creative industries is measured under three buckets:

• Direct impact: The output that is produced and employment that is generated by companies that
are directly engaged in the film, TV, and OVS industries

• Indirect impact: The output that is produced and employment that is generated by suppliers to
the creative industries, as a result of economic activity by these creative industries. For instance,
increased activity by the film sector will drive demand for hotels, transportation, cameras, etc.,
which will in turn generate economic output and employment.

• Induced impact: The output that is produced and employment that is generated because of the
consumption triggered by the direct and indirect employees above spending their wages. We
have used the concept of input-output tables to estimate the indirect and induced impact of the
film, TV, and OVS industry. This is a well-accepted tool to study the impact of one sector on
others, and on the overall economy.

Input-output tables provide a detailed dissection of intermediate transactions in an economy, and

are thus a means to describe the supply and use of products within an economic system.

The tables attempt to answer the question: If an industry has to grow its output by INR 1, how
much should the output of all the industries in the economy grow by? This is best explained
through a simplified example. Suppose the TV industry requires only two inputs to produce an
output worth INR 100, viz. INR 20 worth of cameras and INR 10 worth of catering. Now, if the
TV industry were to increase its output by INR 10, the camera industry would need to increase
its output by INR 2 and the catering industry by INR 1. This total increased production of INR 3
by suppliers to the TV industry is called the first-round effect. However, to increase output by
INR 2, the camera industry would, for example, require the plastic industry to raise output by
INR 0.2, and the lens industry to raise its output by INR 0.3. Thus, there is a second order effect
of INR 0.5. Those sectors, in turn, will have backward linkages for their increased output. This is
essentially an iterative process through which the input-output table is calculated. The input-
output table enables us to determine the overall impact after full set of iterations. Similarly, they
allow us to estimate the induced impact.

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TOTAL ECONOMIC IMPACT: DIRECT, INDIRECT AND INDUCED EFFECTS

The media and entertainment industry’s economic impact on the country’s GDP extends beyond
just direct revenue. There are multi-faceted economic implications of the industry on the overall
economy. The movie industry, for instance, will call upon entertainment lawyers when drafting
contracts; sets will require electricians, carpenters and painters to help put on shows. In
transactions such as these, the media industry has an indirect economic impact on other
industries beyond the direct revenue generated. The core sectors therefore generate jobs, wages,
and output for the suppliers, professionals, and contractors they rely on in the course of business.

There are several methods of measuring economic impact. The input-output analysis, invented
by Wassily Leontief (Nobel Prize-winner in 1973), is considered a reliable and sophisticated
model. This method is based on the input-output tables published by the Ministry of Statistics
and Program Implementation (MOSPI), employment data from the National Sample Survey
Organization (NSSO), and supplemented by research from the National Council for Applied
Economic Research (NCAER).

The input-output tables capture the inter-industry transactions across different industries. MOSPI
defines 130 different industries in the standard input-output table. Media and Entertainment is
included under item 129. They show the value of goods and services produced by each industry
and who purchases them (e.g. some goods, such as cars, are mainly sold to final consumers,
while others, such as steel, are used as input to other industries in producing more goods and
services). Thus, input-output tables show the relationships that exist between industries. From
these tables, it is possible to determine what types of inputs, such as raw materials, manufactured
goods and labor, are used by any industry.

The total economic impact of the media and entertainment industry has three distinct
components:

1. Direct impact:

The jobs, wages, and output generated within the core media and entertainment industry
ecosystem. The core, or direct, output consists of revenues including sales to consumers and
business-to-business spending within the industry. It should include the formal and informal
sectors.

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2. Indirect or flow on impact:

The revenue generated in the economy that are caused by subsequent suppliers’ production as a
consequence of related economic activity. This can be understood as all other production
activities as a result of the relations between direct suppliers and their subcontractors in the local
economy.

In the Media industry, the main drivers of indirect impact are communication, electronic
equipment (e.g. TV sets, mobile handset, etc.) and electricity which contribute to 20 - 30% of the
indirect revenues. Additionally, financial services, infrastructure, services and transportation
contribute close to 30-40% of the consumption of services outside of the core media industry.

3. Induced impact:

The jobs, wages, and output generated as a result of employees in direct and indirect sectors
spending their wages in the country. Induced impact is generated by the income (compensation
to employees) and employment generated in the economy across sectors benefiting from this
increased consumption spend.

There are two major economic impacts that are considered for this study – 1) income and 2)
employment. These are estimated using economic multipliers:

•Type 1 multipliers1:

 Output multiplier:

Measures the direct and indirect impact of the M&E industry on the economy.

This is a multiple of the industry revenue. Reference the methodology described earlier at.

 Employment multiplier:

Measures the direct and indirect employment created by the M&E industry. This is a multiple of
the number of jobs created annually. Reference the methodology described earlier at.

• Type 2 multipliers1:

 Output multiplier:

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Measures the direct, indirect and induced impact of the M&E industry on the economy. This is
also a multiple of the industry revenue. Reference the methodology described earlier at.

 Employment multiplier:

Measures the direct, indirect and induced employment created by the M&E industry. This is also
a multiple of the number of jobs created annually. Reference the methodology described earlier.

TOTAL ECONOMIC IMPACT: REVENUE

Comparing the revenue multiplier in Media and Entertainment industries across other countries,
highlight that we are well above the global average. Typically, as industries achieve scale and
more activities are done in house the multiplier will start reducing as is visible in developed
markets like UK and US.

The detailed methodology employed to estimate these numbers can be found.

The direct revenue generated by the media and entertainment industry is ~INR 130-135K crores.
When considering the total economic impact including direct, indirect and induced benefits, the
total output is ~ INR 450K Crores, a multiplier effect of over 3.5. This is a significant benefit to
the overall

Indian economy and means that every rupee earned in the industry translates to 3.5 rupees to the
country, and a contribution of 2.8% to the Indian GDP.

Contribution by industriesvary significantly, comparable service related industries like hotels,

restaurants, trade contribute ~7% to GDP whereas Financial services contribute ~ 6%.

TOTAL ECONOMIC IMPACT: EMPLOYMENT

The media and entertainment industry employs 1.1-1.2 million employees, making a significant
contribution to the Indian job market. These jobs are spread across various verticals within the
industry including Films, Print, TV, Music, Radio and other smaller sectors like Gaming,
Animation, etc. As we prepare and move with the digital revolution that is fast disrupting the
industry, it is important to understand the types of jobs that the industry offers.

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The entire swathe of jobs in the industry have been classified into seven main job families that
cut across sectors within the industry.

Broadly, these jobs are fungible and skills can transfer across various verticals within the
industry including Films, Print, TV, Music, Radio and other smaller sectors like Gaming,
Animation, etc. As we prepare and move with the digital revolution that is fast disrupting the
industry, it is important to understand the types of jobs that the industry offers.

The entire swathe of jobs in the industry have been classified into seven main job families that
cut across sectors within the industry.

Broadly, these jobs are fungible and skills can transfer across segments like films, TV, Radio etc.
Of the 1.1-1.2 million jobs identified in the industry, 44% are currently operations roles (E.g.,
ticketing agents, DTH installers, spot boys, camera crew etc.). ~18% of the core roles include
content creation, supported by a similar number in the sales and marketing functions. Further, a
growing 9% currently manage the technology and ~2% are dedicated to data analytics.

The direct employment generated by the media and entertainment industry is currently at 1.1 –
1.2 million jobs. Although, similar to the revenue calculations above, when considering the total
economic impact including direct, indirect and induced benefits, the total employment
opportunities generated by the media and entertainment industry is close to ~3.5-4 million jobs, a
multiplier of 3.6.This is a significant number to note, as creating one job in the media industry is
creating a total of 3.6 jobs in the economy ranging from communication, electronics, service
industries etc. Comparing the multiplier to similar service industries, it is evident that Media is a
strong driver in generating additional jobs in the market. For example, the business services
industry which includes IT BPO services currently at a multiplier

KEY GROWTH DRIVERS

Television Subscription

Revenues are projected to be the key growth driver for the Indian television industry over the
next five years. Subscription revenues will increase both from the number of pay TV homes as
well as increased subscription rates. The buoyancy of the Indian economy will drive the homes,
both in rural and urban (second TV set homes) areas to buy televisions and subscribe for the pay

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services. New distribution platforms like DTH and IPTV will only increase the subscriber base
and push up the subscription revenues.

Filmed entertainment

Indians love to watch movies. And advancements in technology are helping the Indian film
industry in all the spheres – film production, film exhibition and marketing. The industry is
increasingly getting more corporatised. Several film production, distribution and exhibition
companies are coming out with public issues. More theatres across the country are getting
upgraded to multiplexes and initiatives to set up more digital cinema halls in the country are
already underway. This will not only improve the quality of prints and thereby make film
viewing a more pleasurable experience, but also reduce piracy of prints.

Print media

A booming Indian economy, growing need for content and government initiatives that have
opened up the sector to foreign investment are driving growth in the print media. With the
literate population on the rise, more people in rural and urban areas are reading newspapers and
magazines today. Also, there is more interest in India amongst the global investor community.
This leads to demand for more Indian content from India. Foreign media too is evincing interest
in investing in Indian publications. And the internet today offers a new avenue to generate more
advertising revenues.

Radio

The cheapest and oldest form of entertainment in the country, which was hitherto dominated by
the AIR, is going to witness a sea-change very shortly. In 2005, the government opened up the
sector to foreign investment – and this is the key factor that will drive growth in this sector. As
many as 338 licences are being given out by the Indian government for FM radio channels in 91
big and small towns and cities. This deluge of radio stations will result in rising need for content
and professionals. New concepts like satellite, internet and community radio have also begun to
hit the market. Increasingly, radio is making a comeback in the lifestyles of Indians.

Internet advertising

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An estimated 28 million Indians are currently hooked on to the internet. And this rising number
is leading to the growth of internet advertising, which today stands at approximately INR 1
billion. The internet is being used for a variety of reasons, besides work, such as chatting, leisure,
doing transactions, writing blogs etc. This offers a huge opportunity to marketers to sell their
products. And with broadband becoming increasingly popular, this segment is expected to grow
by leaps and bounds.

BARRIERS TO INVESTMENT IN THE ENTERTAINMENT AND MEDIA INDUSTRY

A lot more investment can be drawn into the entertainment and media industry if certain sectoral
policy barriers can be addressed. Some of the issues that need to be addressed which commonly
impacts all segments and need to be addressed urgently include:

1. Piracy

The problem of piracy assumes a different proportion in a country such as India with an area of
3.3 million sq. km. and a population of over 1 billion speaking 22 different languages. It impacts
all segments of the industry especially films, music and television. Most of the credible efforts
today to combat piracy have been initiated by industry bodies themselves. On part of the
government, lack of empowered officers for enforcement of anti-piracy laws remains the key
issue that is encouraging the menace of piracy. This, coupled with the lengthy legal and
arbitration process, is being viewed as a deterrent to the crusade against pirates. The current
Copyrights Act too is dated in terms of technology improvements, and above all, it does not
address the needs of the electronic media which has maximum instances of piracy today. The
draft of the Optical Disc Law to address the need for regulating piracy at the manufacturing stage
is still lying with the ministry for approval.

2. Lack of a uniform media policy for foreign investment

The sector currently lacks a consistent and uniform media policy for foreign investment. Some of
the inconsistencies include different caps in foreign direct investment in various segments. This
is enumerated below:

• Television distribution: DTH 49% (strategic FDI only 20%); cable 49% (ownership can only be
with India citizens).

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• Content (news): Television and print - 26%; radio - nil

• Content (non-news): Television and print - 100%; radio 20% (only portfolio)

3. Level playing field with incumbents

Most sectors of the Indian E&M industry have traditionally operated under various agencies of
the Indian government, which were later opened to the private players in various stages. FM
radio is one such example where the incumbent All India Radio (AIR) was the sole player in the
medium of both AM and FM radio broadcasting. Limited frequencies of FM broadcasting have
been opened to the private players but with a licence fee, which is not currently applicable to the
incumbent AIR. Similarly, in television segment, all terrestrial broadcasting rights continue to be
with the incumbent Doordarshan.

4. Content regulation

A long-standing debate continues amongst the industry members on regulation of content. Some
of the issues that need to be addressed in this sphere include:

• Should there be a content regulator or should the industry be allowed self-regulation under a
broad framework?

• If there needs to be one, should the content regulator be independent of the carriage regulator?

• Should the content regulations be consistent across all delivery mediums such as films,
television, radio and print or different sets of regulation should be evolved for each medium?

• What should be the working mechanisms of a content regulation in terms of enforcement,

penalties for default from prescribed guidelines etc.?

5. Price regulation in the television industry

As per a notification issued by the TRAI, broadcast media pricing has been frozen for over a year
now. Though TRAI did allow a 7 percent inflationary adjustment late in 2004, the inflationary
adjustment of 4 percent in 2005 is under a legal dispute. Such price controls limit a broadcaster’s
ability to shape their business model, based on market demand and the competitive environment.
Since the market has so far been efficiently regulated through competition, price regulation thus
becomes a deterrent.

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6. Cross-media ownership rules

Media integration is an important tool in the hands of the media industry which by its very nature
could lead to anti-competitive behaviour hurting the entire value chain of the industry. The
government has been mulling over evolving cross-media ownership rules for which even a
public draft has not been evolved as yet. Most E&M sectoral policy documents have an inbuilt
compliance clause, which states that companies have to abide by the cross-media rules.
However, in the absence of any draft rules or an established time-frame for evolution of such
rules, potential foreign investors can’t evolve their long-term investment strategy for India.

7. Lack of empowered regulators

At present, the government has appointed an independent regulator – TRAI – for only television
and radio. Here too, the role of the regulator has been restricted to providing recommendations
on segment issues to the government, as a result the government has still not acted upon several
recommendations by the regulator. Some of the key recommendations include ‘issues relating to
broadcasting and distribution of TV channels’ of which ‘addressability in distribution’ forms a
significant part impacting the largest segment of television. Other pending recommendations
include ‘digitalisation of cable TV’, ‘privatisation of terrestrial broadcasting’, ‘licensing of
satellite radio’ etc.

8. Merging of the FII and FDI caps

Some industry members are of the view that converting the current cap on foreign institutional
investment (FII) investment to foreign direct investment (FDI) is not a very encouraging move
by the government. FII is primarily considered “hot money” and is invested by foreign funds to
make quick returns unlike FDI, which is longer term in nature and is actually invested into the
business. FDI in several cases is also accompanied with expertise (such as technology) being
brought into the country that helps in the growth and development of the industry. An FII invests
like a financial investor with the prime motive of quick appreciation of its invested capital rather
than taking a longer-term view of the business, whereas an FDI investor is more in the nature of
a strategic investor and is in the business for the long haul. The new policy does not recognise
the need for creating an environment that encourages strategic investors in making investments
in the sector.

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9. Tax treatment of foreign broadcasting companies

The tax treatment of foreign companies in the broadcasting sector in India is emerging as the
single most important policy issue deterring foreign investment in the country. A major issue
pertains to taxation of satellite segment usage fee paid by broadcasters to foreign satellite
companies. Tax assessing officers have attempted to treat such a payment as royalty income and
tax the same on source rule basis. Such satellite companies do not have any office or presence in
India.

Another issue relates to foreign telecasting companies. These foreign telecasting companies do
not have any office, business presence or operations in India. Tax assessing officers have been
arguing that foreign telecasting companies must have a permanent establishment (PE) in India on
account of their agents selling air-time space to India advertisers. While various bilateral
conventions for the avoidance of double taxation do offer a process for re-mediation of double-
taxation issues, cases in past have dragged on for five years or more. The dramatic growth in the
number of foreign broadcasting companies involved in double-taxation dispute cases in India is
becoming well-known, and unless it is dealt with soon, it could become a major impediment to
the Indian government’s attempt to attract new investors.

FUTURE OUTLOOK

With rapid advancements in technology, we believe that convergence will play a very crucial
role in the development of the Indian entertainment and media industry where consumers will
increasingly be calling the shots in a converged media world. Broadband access and Internet
Protocol (IP) will be the technology enablers that will evolve this new breed of consumers.

In the converged world of tomorrow, content and access will no longer be in short supply.
Opportunities for consumers to access and manipulate content and services will not only be
abundant, but overflowing. However, consumer time and attention will be limited.

Thus, established approaches of pushing exclusive content through non-linear-channels or

networks to mass or segmented audiences will no longer guarantee competitive advantage. Thus,
following are the challenges and opportunities that convergence will bring to the industry:

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• Consumer needs are expanding beyond the mass media and segmented media to ‘Lifestyle
Media’, a new approach that will help consumers maximise their limited time and attention to
create a rich, personalised and social media environment. This approach presents many
opportunities for the industry to create new avenues to generate revenue.

• Knowledge of ‘consumer activity’ rather than exclusive ownership of content or distribution

assets will become the basis for competition. Businesses that capture ‘consumer activity’ data
and use it to inform business and advertising models will be positioned to succeed.

• Media marketplace will provide a structure to capitalise on the Lifestyle Media opportunity.
Pulloriented media consumption models, such as a media marketplace, in which the consumer is
furnished with robust search, research, customisation, configuration and scheduling tools will
capture the opportunity associated with Lifestyle Media better than minor modifications to
existing business practices. Participants in media market place must collaborate on this
transformation.

• Early movers in establishing media marketplaces will have a significant advantage over late
entrants because of network effects, whereby the value of the market place increases as the
number of participants increase.

• Media market places will be economically viable only if operational efficiencies can be realised
through consumer activity measurement capabilities and supporting systems.

• Significant advancements in audience measurement technology will be needed to capture,

analyse and standardise consumer activity data across platforms.

• Though convergence will bring uncertainty, the ability to gather rich data on consumer activity
will also lower the risks and costs associated with testing new revenue or advertising models.

• Both content providers and advertisers will need to be more accountable for their performance
because it will now be measurable.

• While technology will make it easier to collect detailed consumer information, privacy
concerns will rise amongst consumers, regulators and privacy advocates.

Convergence will thus require increased collaboration between value chain partners to drive new
products and services to consumers. For content owners, conducting researches to understand the

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needs of the Lifestyle Media consumers will become crucial. They will need to develop
strategies for owning social networks and capturing consumer activity information and will need
to develop convergence-native content rather than concentrate solely on re-packaging existing
content for multiple platforms. They will need to understand the complexities of content security
and controls and incorporate them into the system and processes. In addition to the above,
advertising agencies will need to invest in advertising ROI technology and processes that will
lead to the creation of new viewing experiences that provide advertising opportunities beyond
the traditional 30-second spot.

The Indian entertainment and media industry today has everything going for it - be it regulations
that allow foreign investment, the impetus from the economy, the digital lifestyle and spending
habits of the consumers and the opportunities thrown open by the advancements in technology.
All it has to do is to cash in on the growth potential and the opportunities. The government, on its
part, needs to play a more active role in sorting out policy-related impediments to growth. The
industry needs to fight all roadblocks- such as piracy- in a concerted manner, while churning out
high-quality, world class end products. The entertainment and media industry has all that it takes
to be a star performer of the Indian economy.

ENTRY OPTIONS

• Liaison/representation office: Foreign corporations are permitted to open

liaison/representative offices in India to undertake specific liaison activities on their behalf,
including acting as a communication channel between them and Indian customers. The opening
of a liaison/ representative office is subject to approval by the Reserve Bank of India (RBI).
Applications by companies are typically subject to close scrutiny.

• Branch or project office: Foreign corporations may open branch offices to conduct activities
permitted by the RBI after obtaining approval from the RBI. Setting up a branch office without
RBI approval is possible within a special economic zone (SEZ), subject to certain conditions.

• Local Indian subsidiary companies: Foreign corporations can set up subsidiary companies in
India, subject to FDI guidelines. Further, foreign corporations can set up a joint venture company
with an Indian or foreign partner.

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• Limited liability partnership (LLP): An LLP provides more flexibility in operations
compared with a subsidiary. Recently, FDI has been permitted in LLPs subject to prescribed
conditions.

FUNDING OF INDIAN BUSINESSES

Modes of funding need to be carefully evaluated when investing in India because of the
country’s foreign exchange regulations. This section outlines the various options through which
an Indian subsidiary can be funded.

• Equity share capital: Equity share capital is a conventional method of funding a local Indian
subsidiary company.

• Preference share capital: Foreign corporations can also invest in India through the issuance of
preference shares. Foreign investments through convertible preference shares that are fully and
mandatorily convertible into equity shares are treated as FDI. Preference shares that are not
mandatorily convertible into equity shares are considered external commercial borrowings (i.e.,
debt) and need to conform to external commercial borrowing (ECB) guidelines (discussed in the
following section).

• Debentures and borrowings:

• Debentures: Companies can raise funds by issuing debentures, bonds and other debt securities
or by accepting deposits from the public. Debentures can be redeemable; perpetual, bearer or
registered; and convertible or non-convertible. Like preference shares, the treatment of
debentures as FDI or ECB depends on their convertibility into equity shares.

• ECB: Debt raised in foreign currency (from internationally recognized sources) falls within the
purview of the definition of ECBs (as per the regulations), and they are regulated by the Ministry
of Finance and the RBI. ECBs can be accessed under two routes: the automatic route. (without
RBI approval) and the approval route (with RBI approval). The funds raised can be used for
prescribed purposes and are subject to end-use restrictions. M&E companies need to carefully
evaluate debt funding options, as the sector is not normally covered under the automatic route.
All cases outside the purview of the automatic route are reviewed by an empowered committee
of the RBI.

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• Trade credits: Trade credits for imports are also permitted in some situations.

• Other forms of funding: These include the issue of American Depository Receipts, Global
Depository Receipts, and Foreign Currency Convertible Bonds.

MERGERS AND ACQUISITIONS

Corporate reorganization can be carried out in the form of mergers, demergers, arrangements,
capital reductions, slump sale, buy-back, acquisitions, etc. Some of these are driven by court
processes, while others can be carried out by corporate law processes without approaching the
court. Further, certain reorganizations also require procedures involving the Competition
Commission of India.

REPATRIATION OF CAPITAL AND INCOME

Foreign capital invested in India is generally allowed to be repatriated in the form of dividends or
interest payments after payment of taxes due, provided the investment was made on a
repatriation basis.

Other payments, like royalties, technical service fees and consultancy fees, are permitted, subject
to conditions.

INCENTIVE REGIMES/BENEFITS/OTHER BENEFICIAL PROVISIONS

• SEZs: Units can be set up in SEZs for manufacturing, trading or services activity. Profits
derived by undertakings set up in SEZs are allowed as a deduction from the computation of
taxable income for income tax purposes subject to prescribed conditions. However, income
earned by SEZ units will be subject to Minimum Alternate Tax (MAT) starting in financial year
2011-12.

• Intangibles: Certain prescribed intangibles are entitled to depreciation at 25%. Film production
costs or costs of acquisition of distribution rights for a fi lm are entitled to 100% amortization,
depending on the date of release of the fi lm.

• Others:

• Expenses on research and development can be entitled to a weighted deduction of 200% of the
cost incurred, subject to conditions.

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• There are provisions under the Income Tax Act, 1961 (IT Act), that allow income tax
exemption on certain income from international sporting events held in India, subject to
conditions. Further, specified income of non-resident sportsmen may be subject to tax at 10%
(plus applicable surcharge and education).

• Under the IT Act, income from the sale, distribution or exhibition of cinematographic films is
not covered under the definition of royalty. Income of a non-resident from activities confined to
shooting of a fi lm in India can be evaluated for exemption from income tax.

EMPLOYMENT CREATION POTENTIAL:

Currently 1.1-1.2 Million people are employed directly by the Media industry, although when
considering the overall employment including indirect and induced employment results in 3.5-4
Million employees in the complimentary and allied industries. With a strong growth expected in
the industry, 700-800K jobs are expected to be added directly to the industry. The current
ecosystem does not cater to the requirement for such a large number of jobs in the M&E
industry. The next 5-7 years will see two trends playing out simultaneously.

• The need for a very large workforce in the media and entertainment industry. To put this in
context for the last 5 years, India has on average created ~230k jobs every year.

The M&E industry alone with require ~140-160K trained/ employable individuals entering the
workforce every year for the next 5 years.

• At the same time, the skills required for evolving job roles required will completely transform
given the many disruptions taking place across consumers, competitors and digital. Concerted
efforts by the government, academia as well as industry bodies is required to create a large and
skilled workforce to take the industry to the next stage of growth.

ROLE OF CREATIVE ECONOMY

The media and entertainment industry also has an intangible, but, undeniable role in building a
national identity and portraying India’s brand globally. It plays an important role in shaping
cultural heritage and identity of the country. M&E is uniquely positioned to influence consumer
behavior as no other industry is.

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For example, the release of the Bollywood film, Zindagi Na Milegi Dobara increased Indian
tourism in Spain by 35% in H1 2011. The industry works as a “soft power” having enormous
impact on India’s global standing - as a place worth doing business with; as a place worth
visiting; and as a place worth experiencing culture in its many varied forms, thus changing the
world’s perception of India. Indian cinema, for example, exerts an influence far beyond our
borders and across the world. The creative economy of India has the ability to bestow upon us a
level of trust, soft power and influence in global forums.

The M&E industry is also an important contributor to social cohesion and nation- building
through the promotion of intercultural dialogue, understanding and collaboration.

The sector has a multiplier effect in the generation of intellectual capital in the country. It
provides us with “cultural capital” – defined as the sum total of a country’s wealth or stock of
art, heritage and other kind of cultural expression. Like all other kinds of capital, it needs to be
invested in. Else, it will depreciate and be devalued over time.

CONCLUSION:

The Indian entertainment and media industry today has everything going for it - be it regulations
that allow foreign investment, the impetus from the economy, the digital lifestyle and spending
habits of the consumers and the opportunities thrown open by the advancements in technology.
All it has to do is to cash in on the growth potential and the opportunities. The government, on its
part, needs to play a more active role in sorting out policy-related impediments to growth. The
industry needs to fight all roadblocks- such as piracy- in a concerted manner, while churning out
high-quality, world class end products. The entertainment and media industry has all that it takes
to be a star performer of the Indian economy

BIBLIOGRAPHY:

ARTICLES

1. Business Standard “India's box office growth runs into a screen problem”, January 2016

2. Business World, Changing Phase of Indian Cinema from Commercial To Content Driven
Movies, March 2019

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3. Indian Public Finance Statistics 2017-2018 - Department of Economic Affairs, Deloitte
Analysis

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