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Impose cap on royalty payments by MNCs to parent companies, SJM urges govt.

The SJM’s demand comes in the wake of the decision of Hindustan Unilever Ltd. (HUL) to increase the royalty payment to its parent company, Unilever, from 2.65% to 3.45% (that is, 80 basis point hike), over three years till 2025

January 25, 2023 10:42 am | Updated January 26, 2023 10:22 am IST - New Delhi

Ashwani Mahajan, chief of Rashtriya Swayamsevak Sangh’s (RSS) group Swadeshi Jagran Manch (SJM). File.

Ashwani Mahajan, chief of Rashtriya Swayamsevak Sangh’s (RSS) group Swadeshi Jagran Manch (SJM). File. | Photo Credit: Reuters

Rashtriya Swayamsevak Sangh (RSS) affiliate Swadeshi Jagran Manch (SJM) on Tuesday asked the Central government to impose a cap on the royalty payments and technical fees remitted by multinational corporations to their parent entities. The demand was made to check the outgo of valuable foreign exchange in the name of royalty, said the SJM.

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

The SJM’s demand came after the decision of Hindustan Unilever Ltd. (HUL) to increase the royalty payment to its parent company, Unilever, from 2.65% to 3.45% (that is, 80 basis point hike), over three years till 2025.

“This decision has once again exposed the unethical practice of increasing royalty payment by MNCs, impacting the health of the economy in general and the outgo of foreign exchange and the ultimate depreciation of the rupee in particular,” said Ashwani Mahajan, the SJM’s national co-convener.

The RSS affiliate pointed out that the rising royalty and technical fees to foreign companies has been widening the deficit in India’s Balance of Payments (BOP) further. It added that the royalty and technical fees is one of the many ways in which MNCs extract huge sums of money from the developing and underdeveloped economies.

“For the year 2017-18, while FDI inflows accounted for $60.96 billion, the payments relating to royalty and technical fees amounted to $20.65 billion. This figure is reaching nearly $25 billion now. This shows how benefits of FDI are clearly being negated by the outflow on royalty and technical fees. Moreover, the outgo would continue in future too, even when there is no FDI inflow,” added Mr. Mahajan.

The SJM, that promotes the Make in India policy, maintained that prior to 2009, royalty payments were regulated by the government and were capped at 8% of exports and 5% of domestic sales in case of technology transfer collaborations. The same was fixed at 2% of exports and 1% of domestic sales for use of trademark or brand name.

“This was in tune with international standards and practices but the outflow of these payments started increasing significantly after the Ministry of Commerce, under Anand Sharma, of the UPA government ‘liberalised’ the FDI policy in 2009. It had removed the cap and permitted Indian companies to pay royalties to their technical collaborators without seeking prior government approval,” the SJM said in a statement.

The organisation said that after lifting of the cap on the royalty, outflows on account of royalty and fee for technical services had been increasing at a very fast pace. Hence, the cap on royalty as it existed prior to 2009, was a prudent policy, the SJM added.

“Under the present circumstances, 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,” said Mr. Mahajan, adding that the SJM has demanded that government reimposes these caps to save valuable foreign exchange.

The curbs would help increase the profits of MNCs, mainly in the automobiles sector, prevent depletion of foreign exchange reserves and protect the interest of minority shareholders, the SJM said. It would also increase the revenue of the government, apart from saving valuable foreign exchange, it added.

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