The recently concluded Q1 results season of India Inc has brought to the fore the issue of royalty payments in the automobile industry. The country?s largest car maker, Maruti Suzuki India, reported an unanticipated increase in the royalty and technology fees paid to its Japanese parent Suzuki from an average 3.4% of sales to 5.1%. This move came immediately after a notification issued by the commerce ministry in April 2010, which proposed the removal of cap and permitted Indian companies to pay royalty to their overseas partners without seeking prior government approval. As a result, Maruti had to bear a net royalty burden of Rs 410 crore in Q1 2010-11?81% higher than in the same quarter previous year. It also reported a 20% decline in its net profits, ultimately leading to panic amongst the investors. Not surprisingly, several industry experts were quoted as saying the royalty burden will rise with the addition of newer models.

Which is why it is important to take note of what Maruti chairman RC Bhargava told this newspaper a few days ago. He said that once Suzuki starts sourcing technology from Maruti, the trend may reverse and Suzuki could start making royalty payments to Maruti. Maruti?s technology centre in Rohtak, for instance, is likely to be fully operational by 2015. The car maker is investing Rs 1,500 crore on the centre, which will be its first outside Japan and serve as one of the focal points of Suzuki?s global R&D operations.

Almost all the leading car makers, after making India and China important production bases, are now making efforts to develop them as their technology hubs as well. The local arm of the Detroit-based car manufacturer, GM India, recently added 500 employees to its staff of 1,600 in its Bangalore centre, which is engaged in vehicle and engine development, design and R&D. Nor is this happening only in India. Last Wednesday, GM partnered with China?s SAIC to co-develop fuel-efficient engines and transmission technology. Interestingly, this trend has also spread to various products across sectors. For instance, GE Healthcare?s ultra portable ECG machine ?MACi??whose ?i? stands for India?was specially designed for India but its markets are not limited to developing countries. With technology hubs rapidly shifting, the time has arrived?may be just a few years away?for a reverse gear in royalty payments.

jaya.jumrani@expressindia.com