Royalties paid by Indian firms in line with EMS

Figures are based on percentage of a country’s GDP

The balance of payments data suggests that royalty payments by Indian subsidiaries of multinationals (MNCS) to their parent for using their brand and technology are in line with their peers in other emerging markets.

However, they are significantly lower than what the MNCS earn from their subsidiaries in high-income countries in Europe and North America. The figures above are based on percentage of GDP.

In 2019, the royalty and technical fee payment by Indian subsidiaries of global MNCS such as Maruti Suzuki, Hindustan Unilever, Samsung India, Toyota Kirloskar and Honda Motors India was equivalent to 0.27 per cent of India’s GDP.

This is broadly in line with the ratio in other large emerging economies such as China, Brazil, Turkey and Indonesia.

For example, royalty and technical payment by Chinese firms were equivalent to 0.23 per cent of the country’s GDP in 2019. This ratio was 0.28 per cent in case of Brazil, 0.17 per cent in case Indonesia, 0.22 per cent for Turkey, 0.39 per cent for Russia and 0.99 per cent for Thailand.

The Centre is pushing Indian subsidiaries of global automakers to cut royalty payments so as to make their products more affordable and lower the country’s foreign exchange outgo. In the balance of payments data, royalty and technical fee is classified as charges for use of intellectual property.

The analysis is based on World Bank database on national GDP at current prices (in dollar terms) and payment for use of intellectual property as captured in each country’s balance of payments data.

Data suggests royalty payments’ burden on the Indian economy is half that of world average, nearly a fifth of European Union (EU) and lower than East Asian and North American countries on an average. But India’s royalty-to-gdp ratio is higher than lower middle income countries, Latin America and countries in the West Asia and North Africa.

Experts attribute the national and regional difference to the presence of tech-intensive manufacturing such as automobile and consumer electronics. “According to the capita income increases, individuals and firms use more tech-intensive and advanced products and services. This means greater spending on technology. In contrast, the consumption basket in lowincome countries is dominated by low-tech products such as food and essentials,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory Services.

In India, for example, automakers such as Maruti Suzuki, Hyundai, and Honda are among the top spenders on royalty and technical fee. India has the second largest auto industry among emerging markets after China. In all, Indian firms spent around $8 billion on royalty & technical fee in 2019 from $4.8 billion in 2014. In comparison, Chinese firms spent $34.4 billion on this account in 2019, up from $22.6 billion in 2014. Other big spenders on intellectual property include Russia ($ 6.9 billion in 2019), and Thailand ($5.3 billion).