Categories: Business

Government plan to cap royalty payment for foreign partner says source

Photo: GOOGLE

Government plan to cap royalty payment

new Delhi. To increase investment in the country and to limit the flow of money going abroad from the country, the government can fix the limit of royalties paid by domestic companies to their foreign partners. According to a news source quoted by Business Channel CNBC, the Commerce Ministry has prepared a proposal in this regard and it is likely to be discussed next week. According to information received from sources, the royalty limit can be maximum 4 percent. There will be different limits on royalty for technical support, brand and design.

At the same time, news came last week that the government had asked the auto sector companies to find ways to limit royalty payments to foreign partner companies. The domestic units of Maruti Suzuki and Hyundai of the auto sector pay millions of dollars annually as royalties to the parent company based in Japan and South Korea. According to reports, the Commerce Minister has spoken to the people of the sector about this. The Commerce Minister expressed concern that the amount going out of the country in the name of royalty is quite large. Even on old technologies, domestic units are paying a high amount to foreign partners providing technology. There was a spurt in royalty payments after 2009 when rules related to foreign investment were relaxed. Since last year, when the Modi government started emphasizing on domestic production, the debate on royalty payments has started once again.

The talk of imposing a limit on royalty payments has been going on for almost 2 years. In 1991, the Industrial Policy Statement laid in the House set a royalty limit of 5% on domestic sales and 8% on exports. However, in 2009, by removing this limit, companies were allowed to give royalties to their foreign partners without the permission of the government. In this regard, the Inter Ministerial Group was formed in April 2017 after a surge in the amount going out of the country through royalty.

The government believes that this will increase the profitability of domestic manufacturing units, save foreign exchange, protect the interests of small shareholders and increase the income of the government. The auto sector is expected to benefit more from this. Maruti is paying royalties equal to 5.5 per cent of sales to its parent company Suzuki.

This post was published on August 21, 2020 3:40 pm

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