DPIIT calls inter-ministerial meet on royalty payments on Aug 25

Before 2009, royalty payments were regulated by the government and capped at 8 per cent of exports and 5 per cent of domestic sales in the case of technology transfer collaborations.

The Department for Promotion of Industry and Internal Trade (DPIIT) has convened an inter-ministerial meeting on royalty payments on August 25, an official said. The meeting would be chaired by DPIIT Secretary Guruprasad Mohapatra.

Officials from the commerce department, Reserve Bank of India, and revenue department are expected to participate in the deliberations, the official added. Earlier, a proposal was under consideration of the government to impose some kind of limits on royalty payments in case of technology transfer or collaboration involving foreign entities either directly or indirectly through any firm in India. The increase in the outflow of these payments started after the government liberalized the FDI policy in 2009. It had removed the cap and permitted Indian companies to pay a royalty to their technical collaborators without seeking prior government approval.

Royalty is paid to a foreign collaborator for the transfer of technology, usage of brand or trademarks. In April 2017, a surge in royalty outflow prompted the government to set up an inter-ministerial group to analyze payment norms and see whether there is an excessive payout by Indian companies to foreign collaborators.

Industry experts had stated that restrictions could help increase the profits of domestic companies, mainly in the automobile sector, prevent depletion of foreign exchange reserves, protect the interest of minority shareholders and increase revenue for the government. Before 2009, royalty payments were regulated by the government and capped at 8 percent of exports and 5 percent of domestic sales in the case of technology transfer collaborations. They were fixed at two percent of exports and one percent of domestic sales for use of trademark or brand name.

Auto major Maruti Suzuki paid a royalty of 5.3 percent in 2019-20 of its net sales to its parent Suzuki.