RSS affiliate seeks cap on royalty, fee paid to MNCs

The Swadeshi Jagran Manch (SJM), an affiliate of the Rashtriya Swayamsevak Sangh (RSS) has written to Prime Minister Narendra Modi urging him to impose caps on royalty and technical fees paid to multinational companies in a bid to arrest the slide in the Indian rupee.

In the letter, Ashwani Mahajan, SJM’s national co-convenor, says that the cap on royalty and technical fees payment, which was discontinued by the United Progressive Alliance (UPA) government in 2009, was a prudent policy as it helped in keeping a tab on outflow of foreign exchange.

Mahajan claims that while foreign direct investment (FDI) inflows accounted for $60.96 billion in 2017-18, the payments relating to royalty and technical fees amounted to $20.65 billion. “This shows how benefits of FDI are clearly being negated by the outflow on royalty and technical fees. Moreover, these outgoes would continue in future too, even when there are no FDI inflows,” Mahajan added.

Royalty outflows are payments made by domestic companies to their foreign parent firms or by Indian citizens to foreign entities for use of property, patent, copyright work, licence or franchise. SJM considers royalty and technical fees as a way in which foreign multinational corporations “extract huge sums of

IN OCTOBER, THE VALUE OF THE RUPEE FELL AGAINST THE US DOLLAR AND OTHER MAJOR GLOBAL CURRENCIES

money from the developing and underdeveloped economies”, said Mahajan. “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 and 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 practice,” Mahajan contends.

In October the value of the rupee fell against the US dollar and other major global currencies and government attributed this to high crude oil prices, widening current account deficit, and the dollar gaining strength. On Friday for the first time since October 1, the value of the Rupee went below 73 against US dollar.

When asked about SJM’s demand, Biswajit Dhar of Centre for Economic Studies and Planning at Jawaharlal Nehru University said, “What the government needs to focus on is reducing the outflow of dollar. Whether putting caps on these payments is possible without violating the WTO norms is to be seen, but it could be a way of reducing the outflow of the dollars.”