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Govt is considering reintroducing restrictions on royalty payments

NEW DELHI: The government is considering reintroducing restrictions on royalty payments for technology transfer, given the excessive outflow of such funds to foreign companies, sources said. A proposal in this regard will soon be sent by the Department for Promotion of Industry and Domestic Trade (DPIIT) for consultation between ministries, sources said.

According to the proposal, limits could be imposed for royalty payments on technology transfer or cooperation involving foreign entities either directly or indirectly through any company in India.

A similar proposal was submitted by the department last year. At that time, it had proposed that royalty payments be limited to 4 percent of domestic sales and 7 percent of exports during the first four years; and over the next three years, the limit should be 3 percent of local sales and 6 percent of exports.

But the Ministry of Finance had objected to the proposal, saying it could send a negative signal to foreign investors.

The increase in the outflow of these payments began after the government liberalized FDI policy in 2009. It had removed the cap and allowed Indian companies to pay a royalty to their technical partners without seeking government approval.

Royalty paid to a foreign partner for transfer of technology, use of trademarks or trademarks.

In April 201

7, an increase in royalty outflow prompted the government to set up an inter-ministerial group to analyze payment standards and see if there are excessive payments by Indian companies to foreign collaborators.

Proposing these restrictions, the Department had argued that the curb would help increase profits for domestic companies, primarily in the automotive sector, prevent depletion of foreign exchange reserves, protect minority shareholders' interest and increase revenue for the government.

Prior to 2009, royalty payments were regulated by the government and limited to 8 percent of exports and 5 percent of domestic sales for cooperation between technology transfers. They were set at 2 percent of exports and 1 percent of domestic sales for the use of trademark or trademark.

Auto major Maruti Suzuki pays an average royalty of about 5.5 percent of its net sales to its mother Suzuki.

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