India urges auto firms to cut royalties; banks stake for sale

India’s commerce minister has asked automakers to find ways to reduce royalty payments to foreign parent companies for use of technology or brand names, in an effort to boost local investment and reduce outflows.

In India’s competitive auto market, top-selling carmakers Maruti Suzuki and Hyundai Motor’s local unit pay millions of dollars in royalties to parent companies in Japan and South Korean for using their technology and brand to build and sell cars.

The minister, Piyush Goyal, in a meeting last week asked officials from groups representing carmakers and auto parts manufacturers to review such payments with a view to reducing them, said people with direct knowledge of the discussions.

“The concern raised during the meeting was that the outflow is high, even for old technologies, and something should be done about it,” said one of the sources.

This was said by two sources to Reuters and the sources declined to be named as the talks are private. The ministry did not respond to a request for comment.

India, for years, has debated imposing stricter caps on royalty payments which spiked after 2009 when foreign investment rules were eased and restrictions on such payments were removed. The country’s markets regulator last year suggested imposing curbs on payments exceeding 2 per cent of revenue. The limit was finally set at 5 per cent after complaints from some sectors and fears it may dissuade foreign firms from investing or sharing technology.

Recently however, Indian Prime Minister Narendra Modi’s government has made a renewed push to make the country a major manufacturing hub by encouraging domestic production and curbing imports. It also wants to increase local investment and reduce foreign outflows.

While India does not restrict the amount that can be paid as royalty, any payment by a locally listed company exceeding 5 per cent of revenues needs shareholder approval. Listed companies such as Maruti Suzuki and parts makers including Bosch, Schaeffler India and Wabco India typically pay royalties of between 1 per cent to 5 per cent to their foreign owners. Maruti Suzuki paid 38.2 billion rupees ($510 million) as royalty to its Japanese parent Suzuki Motor in the fiscal year ending March 31, 2020, amounting to 5 per cent of its revenue, according to its annual report.

STAKE SALE OF BANKS: Indian Prime Minister Narendra Modi’s office has asked officials to speed up the process of trimming government stakes in at least four primarily state-owned banks within the current fiscal year, according to two officials familiar with the discussions. The sources said the four lenders are Punjab & Sind Bank, Bank of Maharashtra, UCO Bank and IDBI Bank, in which the Indian government owns majority stakes through direct and indirect holdings.

New Delhi wants to overhaul the banking sector and is also pushing the privatisation of banks and other state-run companies to help raise funds for budgeted spending amid a fall in tax collections due to the economic downturn caused by the pandemic.

Reuters