India accepts RCEP tips on investments

Agrees to remove technology transfer requirements, caps on royalty payments

September 24, 2019 10:27 pm | Updated 10:37 pm IST - NEW DELHI

Easy going: Removal of certain restrictions could result in increased investments in India, it is felt. gettyimages/istock

Easy going: Removal of certain restrictions could result in increased investments in India, it is felt. gettyimages/istock

While India has not yet signed the Regional Comprehensive Economic Partnership agreement, it has accepted suggestions of other countries regarding rules on investments, a source aware of the developments told The Hindu .

India and the other RCEP countries are currently in the final phase of negotiations in Vietnam.

India has so far agreed to several provisions that bring it in line with the investment rules applicable in most comparable countries, including banning host countries from mandating that the investing companies transfer technology and training to their domestic partners, and removing the cap on the quantum of royalties domestic companies can pay their foreign partners.

If the RCEP agreement is signed, these rules are expected to attract greater investment in India from the other 15 RCEP countries (the 10 ASEAN countries, China, Japan, South Korea, Australia and New Zealand). Indian laws currently have the provision wherein companies investing in the country can be made to transfer technology or know-hows to their domestic counterparts.

The government and Reserve Bank of India also currently impose a cap on the royalties a domestic company can pay to its foreign parent or partner, for certain kinds of investments.

Major hindrance

These restrictions have been seen as major hindrances to investing in India, and other RCEP countries have argued strongly for their removal.

“The investment chapter of the RCEP deal has been agreed upon, and India has agreed to the removal of technology transfer requirements, and also the removal of any caps on royalty payments,” the source said.

“This means there will be no cap on the royalties that a company like, say, Maruti, [can] pay a foreign partner.”

While there is apprehension in industry that removing the cap on royalty payments would lead to increased outflow in foreign exchange and deplete the ability of domestic firms to pay dividends to shareholders, there is also the view that removal of these restrictions will result in increased investments in India.

“If India has taken this decision, then it is certainly a step in the right direction,” T. S. Vishwanath, principal adviser with ASL, a law firm specialising in trade law and remedies, said.

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