This refers to the editorial “Fix royalty payment” (April 29). I think the Securities and Exchange Board of India’s (Sebi’s) decision to “put on hold its mandate to give minority shareholders a greater say in deciding royalty payments by listed companies” is a retrograde step. Whether nudged by the government or under pressure from the MNC lobby, the move puts in reverse gear its own earlier decision to insist on shareholder approval for royalty payment. A typical case of “one step forward and two backwards”, not uncommon in our country.
Indeed, “cosy related party deals have been the bane of India Inc.” and billions have been transferred back to parent companies without any commensurate gains to the Indian subsidiaries. We can’t allow the jagirdaari system to continue in perpetuity! The ministry’s apprehensions about “curbed royalty payments leading to outflow of foreign capital” are baseless. If the government is transparent and explicit about our laws governing foreign investment in India, there should be no such issues. Companies look at increased sales and dividends and not just royalty for returns on their investments. They look at markets beyond India for goods produced here at competitive costs. Transferring royalties to the extent of more than 25 per cent of aggregate profit is nothing short of exploitation. It has to stop.
Yes, as you rightly argue, we have to remove too much bureaucratic interference by fixing the threshold at a very decent 5 per cent instead of the measly 2 per cent — for payments without minority shareholders’ approval — and thus concentrate only on the bigger cases. The Kotak Committee recommendation was more prudent when it suggested 5 per cent; let’s just accept that. Really a simple case of the age old “abc analysis” which would facilitate greater attention to genuine cases that deserve shareholder attention.
Krishan Kalra, Gurugram
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