The Indian government has lifted restrictions on foreign investment in the burgeoning film and broadcasting industries, in a landmark move that is expected to have wide-reaching effects on the growth of the sector.

The move, on March 5, followed a review of the entertainment sector policy, with the Cabinet of Ministers of the Government of India, chaired by Prime Minister Atal Bihari Vajpayee, deciding to waive the requirement of government approval for the establishment of film and television production studios, distribution companies or satellite TV companies.

Previously, prospective investors and operators required clearance from Foreign Investment Promotion Board as well as permissions from the Reserve Bank of India.

With this notification the flood gates have been opened for International media and finance companies to invest in the Indian entertainment sector. The current major investors in the sector are Rupert Murdoch, Universal and Sony, but a number of international film and media groups are known to be eyeing the territory for investment opportunities.

Meanwhile, the annual Indian budget tabled in parliament on 28th Feb by the Indian Finance Minister Yashwant Sinha has upset many in the local entertainment industry.

The Indian film and television industry was expecting the removal of Service Tax along with other concessions including parity of the Entertainment sector with the Informational Technology sector. The Government, however, acceded to only two demands - it has cut the import duty for broadcasting equipment by 10% and give a tax holiday for Multiplexes - but only those in rural, non-metropolitan areas.

The Industry has not taken this lightly. One film producer told Screen International, "The government thinks it can do what it wants - on one hand it is claiming entertainment will drive Indian economy and on the other hand it is taxing us and not giving us enough subsidies to grow".

The Multiplex boom has been limited to urban areas and it is unlikely that the cinema theatres will mushroom in villages to take benefit of the government's new announcements.

However, another industry concession that has been well received is the dropping of the 20% import duty on exposed, but undeveloped cinematographic film. Crews returning from shooting abroad were previously forced to pay this additional tax, even after having paying duty on the imported film in the first place.