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Sharma calls for check on royalty

Sharma: Flagging concern

New Delhi, Dec. 22 (PTI): The government is planning to re-introduce restrictions on the payment of royalty and fees for technology transfer and use of brand names by foreign companies to their parent entities to check the “excessive” outflow of foreign exchange.

“The excessive outgo should not be there. We are not saying that royalty will not go but we are looking at this issue as to how to address the sudden outgo of these funds. This needs a little bit of tampering,” commerce and industry minister Anand Sharma said.

He has written a letter to finance minister P. Chidambaram on the issue.

“There has to be a foolproof reporting”, of such funds, he added.

The increase in the outflow of these payments started after the government liberalised the FDI policy in 2009. It had removed the cap and permitted Indian companies to pay royalty to their technical collaborators without seeking prior government approval.

The outflows on account of royalty and fee for technical services, taken together, are as high as about 16-33 per cent of the foreign direct investment (FDI) inflows over the period 2009-10 and 2012-13. In the last fiscal, India had attracted FDI worth $22.42 billion.

Royalty is paid to a foreign collaborator for the transfer of technology or the use of brands.

In his letter to Chidambaram, Sharma has said that given the current economic situation and high outflows on this account, there is a need to take a view on whether the ceiling on royalty payments and fee for technical services should be reintroduced in the FDI policy to check the large outflows and also to prevent possible misuse of this window.

FDI, which is essential to bridge the widening current account deficit (CAD), declined about 15 per cent to $12.6 billion (Rs 74,971 crore) during the April-October period of the current fiscal.

The commerce ministry also wants a proper post-reporting mechanism for technology transfer or collaborations and the use of brand name. It has already sent a draft press note to the department of economic affairs and are awaiting the response.

In the absence of such a mechanism, the exact payments made by Indian entities towards such payments are not ascertained from the RBI.

According to media reports, car maker Maruti’s royalty payment to its Japanese parent Suzuki rose to Rs 2,454 crore in 2012-13 from Rs 495.2 crore in 2007-08.

Before 2009, royalty payments were regulated by the government and was capped at 8 per cent of exports and 5 per cent of domestic sales in case of technology transfer and fixed at 2 per cent of exports and 1 per cent of domestic sales for the use of trademark or brand name.

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