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Swadeshi Jagran Manch (SJM) has urged Prime Minister Narendra Modi to re-impose cap on royalty and technical fees payments made out of India to foreign companies.
Such a move is warranted to address the current concern of depreciating rupee and given that there is no logic to continue with current dispensation of not having any cap on such outflows, SJM National Convenor Ashwani Mahajan said in a letter to the Prime Minister.
Reimposing caps will save valuable foreign exchange and help increase the profits of domestic companies mainly in the automobiles sector, the letter added. Besides protecting the interest of the minority shareholders, the reimposition of cap on royalty and technical fees would also increase the revenue for the Government, according to Mahajan.
Mahajan has in his letter said that one of the important reasons for depreciating rupee is the payment of royalty and technical fees to foreign companies.
The outflows on account of royalty and technical fees payments started increasing significantly after the Anand Sharma-led Commerce and Industry Ministry had in 2009 liberalised the FDI policy and removed the then existing cap to permit Indian companies to pay royalties to their technical collaborators without seeking prior government approval, according to the SJM letter.
For the year 2017-18, while FDI inflows stood at $ 60.96 billion, the payments relating to royalty and technical fees stood at $ 20.65 billion. “Given the grave situation the nation is facing in terms of eroding value of Indian currency, it is imperative to keep the acts of foreign companies in discipline, as they have been increasing the outflow of foreign exchange for royalty and technical fees unilaterally after lifting of cap on the same in 2009”, SJM letter said.
Prior to 2009, royalty payments were regulated by the Government and were capped at 8 per cent of exports and 5 per cent of domestic sales in case of technology transfer collaborations. Royalty was fixed at 2 per cent of exports and 1 per cent of domestic sales for use of trademark and brand name. This was in tune with international standards and practice. Prior to 2009, outflows on account of royalty and technical fees was hardly $ 4 billion, according to Mahajan and this has now increased to more than $ 20 billion.
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