Auto Companies Royalty Payment Reduction Proposed By Govt

2020 Maruti Dzire Price — Maruti pays tonnes of cash to its Japanese parent every year

The Indian government wants auto companies to cut royalty payment to their foreign parents, as it tries to reduce outflows in order to boost economy.

Recently, Commerce Minister Piyush Goyal met up with officials from groups representing automakers and auto parts manufacturers and asked them to review such payments in order to reduce them.

The government’s concern is that outflow is high at the moment, since royalties are being paid even for old technologies. Auto companies with foreign parents tend to pay millions of dollars in royalties to their parent companies for using their technology or brand name.

Top firms such as Maruti Suzuki and Hyundai are among many automakers who pay millions of dollars every year in order to continue manufacturing and selling cars here.

Maruti Suzuki paid 4.6 percent or $510 million (Rs. 3824 crores) of its total FY19-20 revenue as royalty to its parent, and Toyota paid $88 million (Rs. 660 crores) or 3.4 percent of its revenue to its Japanese parent.

Hyundai, on the other hand, paid $150 million (Rs. 1124 crores) or 2.6 percent of its revenue as royalty payment to its South Korean parent firm. In all, reports state that auto companies royalty payment of 31 leading firms (with foreign parents) stood at $1.11 billion (Rs. 8328 crores) in FY19.

However, none of these companies are said to have breached the five percent cap (of the total revenue) that can be paid as royalties. If any locally listed company wants to exceed the cap for payments, it would need shareholder approval.

India has, for years, been looking at this issue and even the country’s markets regulator suggested that the country should start imposing curbs on payments exceeding two percent of a firm’s revenue.