We have in the past covered government’s removal of restrictions on royalty payments by Indian companies to foreign collaborators in cases of technology transfers, usage of trademarks, brand names etc. and how this decision came to be misused by the foreign parent companies. As a first step towards undoing the abuse of this policy, an inter-ministerial group to examine the issue has been formed. It is also rumored that this move may be part of the proposed retaliatory measures against the US government’s decision to impose curbs on H-1B visas to Indians.
Just to give a quick recap, royalty outflows were earlier capped at 5% of Domestic sales, and 8% of export in case of technology collaboration and even lower figure in case of trademark and brand name uses. This restriction was later on lifted and royalty payments to foreign entities came to be allowed through automatic route. Although the moves was in sync with the extant policies, it came to be misused and Indian subsidiaries started shelling out to foreign parent companies , royalties at much increased rate without a concomitant increase in their net profits ,resulting in diminished dividend to the minority shareholders .
Admittedly, government has been contemplating a re-imposition of checks on royalty outflows for a while. While the tendency to misuse the policy to unfairly benefit the foreign parent companies need to be curbed.