NEW DELHI: National industry body Ficci has demanded that the government must give several tax exemptions and holidays to let the animation, gaming and VFX industries, which is growing faster than the overall entertainment industry, realise its full potential.

Ficci has demanded in the budget for 2008, the government must give a 10-year tax holiday, removal of service and sales taxes on the software used for production for 10 years, exemption of import duty on hardware for 10 years, and other facilitating measures.

Interestingly, it says also that as there is no Indian channel with 24 X 7 indigenous animation content, 10 per cent of the time on entertainment channels must be reserved for such content. This will give local content and talent a major boost.

The memorandum from Ficci says that though the animation, gaming and VFX industry is growing in leaps and bounds, the full potential is yet to be tapped, despite the projection that the industry would grow hugely by next year.

Ficci estimates show that the animation industry today stands at Rs 13 billion and is expected to grow to Rs 43 billion by year 2009, with a CAGR of 35 per cent.

Similarly, the gaming industry is expected to grow from Rs 360 million to Rs 13.50 billion by 2009, with a CAGR of 78 per cent.

"The growth rate in these sectors are much higher than overall media & entertainment sector, which is expected to grow at a rate of 19 per cent," says Ficci. The industry could be a major export revenue earner as well as provide massive employment.

Ficci says that after Information Technology, the biggest export earners for India are Animation, Gaming and VFX, but the overall business model existing at present, which is a low-end BPO approach, is stunting its growth.

The Ficci document stresses: "Exports in this vertical can be looked in two ways: one, a purely outsourcing model in which production houses provide services to overseas studios. This is low-end work in the value chain with more of a BPO approach.

"The other is revenues earned from exporting the finished product (the intellectual property developed in India for domestic / foreign markets) to global audiences.

"Both the models have tremendous potential for foreign exchange earning for India. But it is better in the long term if we move up the value chain and have indigenous content with both domestic and foreign appeal."

Ficci estimates that in the next five years, India would require more than 30,000 trained animators and gaming professionals.

"If this industry is nurtured properly, it can meet the government‘s objective of employment generation, and the latter should aid in the setting up of centres of excellence on the lines of IITs and IIMs for the animation and gaming industry," says Ficci.

Ficci feels that the other direct impact of aiding these industries would be building Brand India better, by engaging the country‘s massive talent pool in creating content for Indian as well as global audiences by transferring India‘s 5,000-year-old time- tested legends into the new media.

"Animation could be another way of creating "Brand India" among NRIs / PIOs and other global audiences. Currently when India is increasingly garnering attention in the world arena, it is the right time to reach outwards through this medium," Ficci says.

Ficci points out to models of Korea, China, Singapore, etc., which enjoyed their respective government support, so much so that 40 per cent of the animated content in the US is Japanese.

"The reason for such a pattern is that countries like Japan and Canada have developed very strong domestic markets, and once a domestic market gets enough consumable content, the same can be routed for exports," says the memorandum.

Ficci reminds that the Korean government sees animation as the most competitive industry for the 21st century, and has provided massive tax reliefs.

"(Korean) application guidelines specify that companies whose projects have been accepted by a Korean broadcaster can apply for up to 40 per cent of their production budget," Ficci says, demonstrating the massive support system there.

So far as the animation industry is concerned, Ficci says that it is now covered under Software Technology Parks of India.

The problem, says Ficci, is that this holds good for a BPO nature of work where outsourcing is the main module and most of the studios which are getting benefited from STPI have to make sure of an export commitment of more than 85 per cent.

"As a result many Indian studios wanting to produce original content based intellectual property and use art and talent from India to produce animation stories do not get any such benefits," explains the memorandum.

Creating original content in India attracts custom duty and also the freshly levied sales tax (VAT) on off the shelf software (12.2 per cent, which might increase further) and further also the income tax component.

"This is leading to more and more studios working on foreign content and a severe lack of animated Indian stories in our domestic television schedules," laments Ficci.

Hence Ficci‘s key proposals for the animation, gaming and VFX industries are

• Tax holiday for 10 (ten) years, so that cost of creating intellectual property (original content) comes down drastically and the industry becomes viable
   
• Removal of Service Tax
   
• Removal of Sales Tax on the Software used for Animation, Gaming & VFX production for a period of 10 years
   
• Exemption of Import duty on hardware for a period of 10 years
   
• Market Development Assistance for overseas business promotion
   
• 10 per cent mandatory local content on the networks to began with

"Finally, we feel there is negligible revenue accruing to the exchequer currently as no new Indian IP is getting created. If a tax holiday is given, revenue will flow into the exchequer funds in a couple of years as the industry will gain impetus and encouragement to grow. In this regard the IT sector can be looked at as a role model," says the Ficci memorandum.