Reimpose cap on royalty payments by MNCs, says Swadeshi Jagran Manch

NewsDrum Desk
24 Jan 2023
Reimpose cap on royalty payments by MNCs, says Swadeshi Jagran Manch

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New Delhi: The Swadeshi Jagran Manch on Tuesday demanded that the Centre reimpose a cap on royalty payments by multinational companies and said huge sums are going out of the country, impacting the health of its economy since the cap was lifted in 2009.

Terming the issue a "huge problem", the RSS affiliate expressed concern over the outgo of "valuable" foreign exchange in the name of royalty and technical fees by multinational corporations (MNCs).

"A case in point today is the decision of the Hindustan Unilever Ltd (HUL) to increase the royalty payment to their parent company Unilever from 2.65 per cent to 3.45 per cent, that is 80-basis point hike, over three years till 2025," Ashwani Mahajan, the Swadeshi Jagran Manch co-convenor, said in a statement.

"This decision has once again exposed the unethical practice of increasing royalty payment by the MNCs, impacting health of the economy in general and outgo of foreign exchange and ultimate depreciation of rupee in particular," he said.

Royalty and technical fees is one of the many ways in which the MNCs "extract huge sums of money from the developing and underdeveloped economies", he added.

Prior to 2009, royalty payments were regulated by the government and capped at 8 per cent of exports and 5 per cent of domestic sales in case of technology transfer collaborations. It was fixed at 2 per cent of exports and 1 per cent of domestic sales for use of trademarks or brand names, Mahajan said.

This was in tune with international standards and practices, he added.

The Swadeshi Jagran Manch co-convenor said the outgo of foreign exchange on royalty and technical fees was then hardly USD 4 billion, which has, "henceforth been increasing in leaps and bounds and has reached more than USD 25 billion by now since the cap was lifted by the Union Ministry of Commerce in 2009.

"This shows how benefits of the FDI (Foreign Direct Investment) are clearly being negated by the outflow on royalty and technical fees," he said.

Moreover, these outgoes will continue in future too, even when there are no FDI inflows, he said.

Rising royalty and technical fees to foreign companies has been further widening the deficit in India's Balance of Payment (BOP), he added.

"The outflow of these payments started increasing significantly after the Ministry of Commerce under Anand Sharma liberalised the FDI policy in 2009 during the UPA regime.

"The Swadeshi Jagran Manch (SJM) demands that the government reimpose these caps to save valuable foreign exchange as there is no logic to continue the same," Mahajan said.

It would help increase the profits of MNCs, mainly in the automobiles sector, and prevent depletion of foreign exchange reserves as well as protect the interest of minority shareholders, he said.

It will also increase the revenue of the government, apart from saving valuable foreign exchange, he added.

"It is the considered opinion of the Swadeshi Jagran Manch (SJM) that the cap on royalty as it existed prior to 2009 was a prudent policy as it helped in keeping outgo of foreign exchange and therefore keeping the current account deficit in the BOP low and therefore reduced requirement of foreign exchange," Mahajan said.

"Under the present circumstance, it is imperative to keep the acts of foreign companies in discipline, as they have been increasing outflow of foreign exchange for royalty and technical fees unilaterally after lifting of cap on the same in 2009," he added.

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