Ask foreign parent companies to trim royalty to cope with Covid-19 impact: Goyal to automakers

India does not curb the amount of royalty that can be paid to the parent company. But any royalty payment exceeding 5% of revenue of a locally-listed firm requires shareholder approval. Usually, firms’ royalty payment varies from 1% to 5% of their revenue. 

By:September 5, 2020 10:56 AM
Automobiles Sales seems gaining momentum, vehicle sales figure better in august, maruti suzuki, hyundai, mg motor, mahindra and mahindra, toyotaImage: Reuters

Commerce and industry minister Piyush Goyal on Friday impressed upon automakers to ask their foreign parent companies to trim royalty payments to be able to better cope with the damaging impact of the Covid-19 pandemic. Leading carmaker Maruti Suzuki paid as much as Rs 3,820 crore (about $510 million) in royalty to its Japanese parent Suzuki Motor in FY20, its annual report says. Similarly, Hyundai’s India unit paid $150 million to its South Korean parent in FY19 and Toyota Motor’s India arm paid $88 million to its Japanese parent, according to government data. Addressing the annual convention of the Society of Indian Automobile Manufacturers, Goyal said: “Reduction in royalty can help them reduce the cash outflow, bring down the vehicle prices and help in boosting their domestic sales.”

India does not curb the amount of royalty that can be paid to the parent company. But any royalty payment exceeding 5% of revenue of a locally-listed firm requires shareholder approval. Usually, firms’ royalty payment varies from 1% to 5% of their revenue. Goyal said railways is ready to reduce the freight rate to help the auto industry with affordable logistics options. The government could come up with innovative credit guarantee schemes to help auto exporters, he added. For their part, automakers should find out innovative finance options, he said.

Exhorting the auto sector to re-strategise to emerge stronger from the crisis, Goyal said that India is looking at the expansion of capabilities through the Atmanirbhar campaign. Separately, in his meeting with export promotion councils, Goyal said both exports and imports are showing “positive trends”. The government’s recent move to cap the benefits granted under a key programme — Merchandise Export From India Scheme—at just Rs 2 crore per exporter for shipents made during September-December period won’t affect 98% of exporters, he said.

Earlier this week, exporters’ bodies sought a review of the decision to cap the benefits, saying medium and large exporters who are primarily responsible for driving growth will be badly hit by the move. Exporters are also upset that even this limit can be revised down, as the government has limited overall outgo under MEIS to just Rs 5,000 crore between September and December. Merchandise exports witnessed a record 60% crash y-o-y in April, although the contraction narrowed to 37% in May, 12% in June and 10% in July, as lockdown curbs were lifted from June.

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