Cap royalty payments, technology transfer fees by domestic firms: SJM to govt

The RSS-affiliated Swadeshi Jagran Manch (SJM) Friday urged the government to put a cap on royalty payments and technology transfer fees, asserting that this move will help in keeping the current account deficit under check.

The organisation has written to Prime Minister Narendra Modi, demanding a cap on royalties paid by domestic companies to their foreign parent firms.

"It is the considered opinion of SJM that the cap on royalty as it existed prior to 2009 was a prudent policy as it helped in keeping outflow of foreign exchange, and therefore keeping the current account deficit in balance of payments, low," its co-convener Ashwani Mahajan said in the letter.

Royalty payment outflows are payments made by domestic companies to their foreign parent firms or by Indian citizens to foreign entities for use of property, patent, copyrighted work, licence or franchise.

The SJM said royalty and technical fees is one of the many ways in which multinational companies can extract huge sums of money form developing and underdeveloped economies.

Substantiating his demand, Mahajan said for the year 2017-18, while FDI inflows accounted for USD 60.96 billion, the payments relating to royalty and technical fees amounted to USD 20.65 billion.

"This shows how benefits of FDI are clearly being negated by the outflow on royalty and technical fees. Moreover, these outgoes would continue in future too, even when there is no FDI inflows," he said.

Prior to 2009, royalty payments were regulated by the government. It was capped at eight per cent of exports and five per cent of domestic sales, he said.

While in case of technology transfer collaborations, the fee was fixed at two per cent of exports and one per cent of domestic sales for use of trademark or brand name, he said.

"This was in tune with international standards and practice. The outflow of these payments started increasing significantly after the Commerce Ministry during the UPA government liberalised the FDI policy in 2009," Mahajan claimed.

The Congress-led UPA government removed the cap and permitted Indian companies to pay royalties to their technical collaborators without seeking prior government approval, he said, adding after the lifting of the cap on the royalty outflows, it has been increasing at a very fast pace.