Royalty, technical fee cost Indian units of global auto majors Rs 8,000 cr

Union Commerce Minister Piyush Goyal last week asked multinationals to reduce royalty payments to curb the forex outgo and promote domestic manufacturing and product development.
The Indian units of global auto majors such as Suzuki, Hyundai, Honda, Toyota, Ford, and Nissan together spent more than Rs 8,000 crore on royalties and technical fee, when the numbers for either FY20 or FY19 are considered.

It was equal to nearly 4 per cent of their combined net sales. The numbers for Maruti Suzuki are for FY20 while those for others are for FY19.

The foreign exchange outflow on account of royalty payment has been, however, more than made up by their exports. Last year, these companies exported passenger cars and two-wheelers worth Rs 44,150 crore, nearly five times their expenses on royalties and technical fees.

Maruti Suzuki has the largest royalty bill in the industry and spent around Rs 3,800 crore on this account in FY20, equivalent to 5 per cent of its net sales. It is followed by Honda Motorcycle & Scooters, which spent Rs 1,252 crore on royalties.

Union Commerce Minister Piyush Goyal last week asked multinationals to reduce royalty payments to curb the forex outgo and promote domestic manufacturing and product development.

Domestic automakers such as Tata Motors, Mahindra & Mahindra, Hero MotoCorp, Bajaj Auto, and TVS Motors spend large sums on research and development as they try to catch up with the MNCs. In FY20, the country’s six home-grown automakers together spent around Rs 6,000 crore on R&D, equivalent to nearly 3.4 per cent of their net sales.

“Access to latest technologies is critical for India’s rapid economic development. Royalty payments must be viewed as a facilitator as long as they are within a reasonable range and globally competitive,” said the spokesperson for Toyota Kirloskar Motors. Indian subsidiaries of global auto makers accounted for nearly two-thirds of all automotive exports. According to the data from Capitaline, Ford India tops the charts with exports worth Rs 16,700 crore in FY19, accounting for 70 per cent of its revenues. In comparison the company spent Rs 564 on royalty and technical fees in the year.

Ford is followed by Hyundai Motors India, which exported vehicles worth Rs 12,000 crore in FY19, accounting for 28 per cent of its revenues. Against this the company spent Rs 1,132 crore on royalties and technical fees. Two-wheeler maker Bajaj Auto is the country’s third largest automotive exporter and exports accounted for nearly 40 per cent of its net sales in FY20.

Rahul Mishra, Principal, Kearney is of the view that there has to be a mechanism in place to increase local technology and intellectual property development.

 “After the push on local manufacturing, we need to strengthen local research & development (R&D) capabilities. There have been incentives to promote local R&D but now may be an opportunity to drive a shift as it involves a long term economic interest and is a step towards making the country self dependent,” says Mishra.

Having said that, no action should be a knee-jerk as it causes more disruption and there has to be clearly defined timeline and a sunset clause before taking any decision, he added.

An executive at a global automaker said: “We buy technology from various sources across the globe. We pay for it but the risk we take as a company is assimilating the technology into one cohesive whole and selling it in the marketplace.”

 



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel