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Alert 352 - India - Further liberalization of technology transfer policy
India’s recent liberalization of its technology transfer regulations brings cheer to foreign investors and their technology partners in India. The Ministry of Commerce and Industry (Government of India) issued a press release on 17 December, 2009 stating that it has removed certain requirements to obtain prior government approval for the transfer of technology into India with immediate effect.
Under the earlier policy, government approvals were required for foreign technology transfers into India involving lump-sum payments of over US$2 million, and payments of royalty of over 5% on domestic sales and 8% on exports. Even if no technology transfer was involved and the foreign collaboration was limited to licensing of trade marks, prior government approvals were required if the royalty payments were over the prescribed limits of up to 2% for exports and 1% for domestic sales.
The new policy removes any such restrictions. However, all such payments will now be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 (FEMA Rules) as amended from time to time. Further, the press release indicates that a suitable post-reporting system for technology transfer/foreign collaborations and/or use of the trade marks will be notified by the Government separately.
Our comment
The drive towards liberalization in India was initiated in the 1990s and since then has undergone various reforms. The removal of rigid government controls in the past has been an impetus to a free market and attracted foreign direct investments into India.
The recent relaxation of the foreign collaboration policy is a further step towards free and unrestricted foreign collaborations in the field of technology. The liberalization drive will further help the country to access the latest technology from around the world and the development of India's own technology industries.
Under the earlier policy, government approvals were required for foreign technology transfers into India involving lump-sum payments of over US$2 million, and payments of royalty of over 5% on domestic sales and 8% on exports. Even if no technology transfer was involved and the foreign collaboration was limited to licensing of trade marks, prior government approvals were required if the royalty payments were over the prescribed limits of up to 2% for exports and 1% for domestic sales.
The new policy removes any such restrictions. However, all such payments will now be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 (FEMA Rules) as amended from time to time. Further, the press release indicates that a suitable post-reporting system for technology transfer/foreign collaborations and/or use of the trade marks will be notified by the Government separately.
Our comment
The drive towards liberalization in India was initiated in the 1990s and since then has undergone various reforms. The removal of rigid government controls in the past has been an impetus to a free market and attracted foreign direct investments into India.
The recent relaxation of the foreign collaboration policy is a further step towards free and unrestricted foreign collaborations in the field of technology. The liberalization drive will further help the country to access the latest technology from around the world and the development of India's own technology industries.
At first sight this new policy seem promising as it will save the time and costs involved in obtaining government approvals for technology transfers involving payments exceeding the limits prescribed in the earlier policy. However, it is yet to be seen how cumbersome the government’s post-reporting system will be. There is also a concern that transactions that were subject to automatic approval under the earlier policy may also be subject to the post-reporting system, which would bring an additional compliance requirement.
For more information, email india@iprights.com.
