Transfer of Technology Agreements in India and Approvals

Approvals

The Reserve Bank of India ("RBI") accords automatic permission for foreign technology agreements in high priority industries up to 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over 10 year period from date of agreement or 7 years from commencement of production. In addition, lump-sum technology payments up to Rs. 1 crore, i.e., (Rs. 10 million) are permitted under the automatic approval system. The prescribed royalty rates are net of taxes and are calculated according to standard procedures.

Subject to the aforesaid guidelines, automatic approval is available in non-high priority industries, if no foreign exchange is required for any payment.

Governing Laws

Transfer of technology agreements must be subject to the laws of India. These agreements can be subject to arbitration under the rules of international institutions like the International Chamber of Commerce (the "ICC"). Arbitration can take place in India or abroad. India is a party to the 1958 New York Convention on Enforcement of Arbitration Awards. Foreign awards are, therefore, enforceable in India. Under Indian law, upon termination of the transfer of technology agreement after its 7-10 year period, the technology is deemed to be perpetually licensed to the Indian party for use in India. Special rules apply to the transfer of technology to Indian government companies.

Repatriation of Investments & Profits from India

One of the biggest concerns for foreign investors is how to get dollars out of India? Historically, it is not a problem to repatriate investments and profits from India. The Overseas Private Investment Corporation ("OPIC"), a U.S. government backed insurer of foreign commercial dealings, has never had to pay a claim due to India's failure to provide foreign exchange. Dividends, capital gains, royalties and fees can be repatriated easily with the permission of the Reserve Bank of India. In a short, specified list of consumer goods industries, dividend balancing is required against export earnings.

In case of an exit decision, the overseas promoter can repatriate his share after discharging tax and other obligations. He can also disinvest his share either to his Indian partner, to another company, or to the public. Even during the so-called worst period no foreign company left India without proper and due compensation. Problems do arise when people and businesses try to go around the rules or from inexperience.

Rupee, the Indian currency, is convertible for the current account. It means that:

  • Repatriation of foreign exchange at the existing market rates has become easier.
  • Exporters can retain 25% of total receipts in foreign currency accounts to meet requirements such as travel, advertising, etc.
  • Foreign exchange will be available at market rates for all imports except specified essential items.
  • Foreign exchange requirements for private travel, debt servicing, dividend or royalty payments and other remittances may also be obtained from banks or exchange dealers at the current market rate.

The system has the advantages of completely bypassing bureaucratic controls and freeing importers from delays and inefficiencies.

Privatization, Private & Public Sector in India

Almost all the agriculture sector in India is in private hands. Most of the industrial sector is open to private participation. The number of industries reserved for the public sector has been reduced to 6. The industries reserved for public sector are arms and ammunition, defense equipment, defense aircraft and warships, atomic energy, coal lignite, mineral oils, and sulfur and diamonds. All other areas are open to the private sector and private sector participation on a selective basis even in the still restricted areas is being considered. In practice railways, post and telegraph, shipbuilding, oil exploration and mineral industries are mostly government owned. A process of disinvestment of government holdings in selected public enterprises has been initiated. The government plans to form a new corporation, Indian Railways Catering Tourism Corporation (IRCTC). IRCTC will take over catering work and enter into tourism projects and trains in collaboration with private sector.

 

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