Economy

DPIIT to review royalty payments made to firms abroad

Amiti Sen New Delhi | Updated on August 19, 2020 Published on August 19, 2020

Commerce and Industry Minister Piyush Goyal reportedly raised the issue of high royalty payments made by auto majors such as Maruti Suzuki and Hyundai Motor Company to their parent companies overseas and suggested that it should be reduced   -  PTI

Inter-ministerial group to discuss pros and cons of imposing curbs

The Department for Promotion of Industry and Internal Trade (DPIIT) is likely to hold an inter-ministerial meeting next week to discuss the need for policy measures to check excessive outflow of royalty payments to overseas companies for use of their technology or brand names.

“We discuss such issues periodically. There is a possibility that an inter-ministerial meeting on royalty payments will take place at the behest of the DPIIT next week,” a government official told BusinessLine.

The meeting, to be attended by officials from the Departments of Commerce, Revenue and Heavy Industries, and the RBI, is likely on August 25.

In a meeting last week, Commerce and Industry Minister Piyush Goyal reportedly raised the issue of high royalty payments made by auto majors such as Maruti Suzuki and Hyundai Motor Company to their parent companies overseas and suggested that it should be reduced.

“The huge outflow of royalty payments made by Indian companies to their overseas parent companies has been a concern for the government for the last few years. Last year, the DPIIT had considered circulating a paper on capping royalty payments, but had not moved ahead on it,” said another official.

Multinational companies in India pay thousands of crores to their overseas parent companies every year — some like Maruti Suzuki pay up to 5 per cent of their revenues — for using the latter’s technology and brand names. This was made possible after the government liberalised its FDI (foreign direct investment) policy in 2009 and allowed Indian companies to pay royalties without any caps or prior government permission.

The Centre has been toying with the idea of imposing a cap of 2-5 per cent of revenues on royalty, but has been hesitating due to fears that it may act as a disincentive for foreign investments.

“A lot of deliberation is called for in the matter of capping royalty payments. While it is not easy to see so much revenue being siphoned off by multinationals in the form of royalty payments, it is also important to ensure that India doesn’t become unattractive for foreign investors,” the second official said.

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Published on August 19, 2020
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