Centre mulls limit on royalties

Royalty is paid to a foreign collaborator for transfer of technology, usage of brand or trademarks. As per the proposal, it should be capped at 4% of domestic sales.

New Delhi, July 31: The government is considering restrictions on royalty payments for technology transfer in view of excessive outflow of such funds to overseas companies, sources said.

The commerce and industry ministry has proposed limits on royalty payments in case of technology transfer or collaboration involving foreign entities either directly or indirectly through any firm in India.

The proposal will be circulated for inter- ministerial views, the sources said.

As per the proposal, such payments should be capped at 4 per cent of domestic sales and 7 per cent of exports for the first four years; and for the next three years the limits should be 3 per cent of local sales and 6 per cent of exports.

For further three years, these payments should be capped at 2 per cent of domestic sales and 4 per cent of exports and thereafter at 1 per cent of local sales and 2 per cent of exports.

With regard to use of trade mark and brand names, the ministry has proposed to cap royalty payments at 1 per cent of sales and 2 per cent of exports of an entity.

The increase in outflow of these payments started after the government liberalised the FDI policy in 2009. It had removed the cap and permitted Indian companies to pay royalty to their technical collaborators without seeking prior government approval.

Royalty is paid to a foreign collaborator for transfer of technology, usage of brand or trademarks. In April last year, a surge in royalty outflow prompted the government to set up an inter- ministerial group to analyse payment norms and see whether there is excessive payout by Indian companies to foreign collaborators.