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<ul><li>India's market regulator decided to defer the roll out of restrictions on royalty payments</li><li>The new norms have deferred till June 30 from April 1, 2019</li><li>Restrictions on royalty payments were brought in to stop diversion of profits </li></ul> Indian companies that pay a royalty for use of intellectual property, or for the use of a brand, were scheduled to be regulated by a set of norms. Most importantly, they would need the approval of shareholders if the royalty payment were to exceed 2% of sales starting April 1. However, the market regulator, Securities and Exchange Board of India (SEBI), has deferred the rollout of the new regime to June 30, 2019. This will benefit companies like car maker Maruti that pays an annual royalty to its Japanese parent Suzuki, and Hindustan Unilever that pays a similar fee to its British-Dutch parent. "In view of the representations received on the subject and with a view to analysing them, the board decided to defer the implementation of this provision for three months i.e. till June 30, 2019," a SEBI press release on March 27 said. Companies had lobbied hard with the government to stop the new norms, a <a href="https://timesofindia.indiatimes.com/business/india-business/indian-companies-royalty-pay-under-lens/articleshow/66409828.cms" data-type="tilCustomLink" target="_blank">report said last year</a>. The most of royalty paid by Indian companies come from the automobiles, information technology, electronics and consumption sectors. 
 
 
 
 
 
 
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 In February this year, the promoters of Jubilant Foodworks, which holds the licence for Dominos Pizza and Dunkin Donuts, decided to draw more royalty from the company's profits. While the royalty sought by Jubilant promoters was 0.25%-- much below the 2% threshold-- this royalty was meant to be paid for the use of the 'Jubilant' brand, and not Dominos, and the board even approved it. However, after feeling the heat from shareholders, the <a href="https://www.financialexpress.com/industry/day-of-flip-flops-for-jubilant-firms-on-royalty-payment/1478272/" data-type="tilCustomLink" target="_blank">decision was rolled back</a> within a few hours. The restriction on royalty payments were proposed after <a href="https://www.iimb.ac.in/sites/default/files/2018-06/Royalty%20on%20IP%20Analysis%20of%20Principal%20Issues%20-%20Working%20Paper_0.pdf" data-type="tilCustomLink" target="_blank">a study highlighted that </a>"policy regimes on royalty payments need careful treatment in the hands of decision makers. They should not lead to diversion of technology transfer offers from India to other emerging economies that offer more liberal royalty regimes." In other words, the new norms were expected to stop the diversion of profits away from shareholders. Now, once again, the country's market regulator is taking time to analyse its decision to let shareholders to decide the validity of large royalty payments.

India's market regulator is giving royalty restrictions a second thought

<ul><li>India should not become complacent on the export front. Total export by all nations is about 28-30% of the world GDP. </li><li><keyword id="6393721" type="General" weightage="20" keywordseo="indirect-taxes" source="Orion">Indirect taxes</keyword> such as <keyword id="14212793" type="General" weightage="20" keywordseo="mineral-taxes" source="Orion">mineral taxes</keyword>, <keyword id="6356916" type="General" weightage="20" keywordseo="excise-duty" source="Orion">excise duty</keyword>, export duty etc., must be levied in a rational manner to remove the cascading effect. </li><li>Ban on the export of agro produce shall immediately affect the income of about 45-50% of the population employed in the farming sector. </li></ul>During 2021-22, India exported goods and services worth $669.7 billion (22.8% of GDP) as against $538.6 billion which was at about 20% of GDP during 2017-18. This calls for a sincere applause. However, India should not become complacent on the export front. Total export by all nations is about 28-30% of the world GDP. In 2012-13, India exported goods and services to the tune of 25.4% of GDP. Therefore, India must boost exports up to 28-30% of its GDP. That will recover the loss of GDP during Covid years and ensure consistent growth in the years to come. For this, the cost of basic inputs such as capital, energy, minerals and logistics must be reduced to become globally competitive. More so, indirect taxes such as mineral taxes, excise duty, export duty etc., must be levied in a rational manner to remove the cascading effect. That will boost exports and also arrest ‘cost push’ inflation. Recently, to control inflation, India has banned exports of few agro products and levied 50% export duty on iron ore, 45% on iron ore pellets and 15% on steel. However, current inflation in India is not due to shortage in supply but due to ‘cost push factor’. The export curbs need review since; it will impact GDP growth. Yes, in case of shortage in supply, curbing of exports in a calibrated manner may be chosen as a last option. Ban on the export of agro produce shall immediately affect the income of about 45-50% of the population employed in the farming sector. That will aggravate the unemployment problem. Advance estimate of production and consumption with predictable export policy shall enhance agro production without causing high inflation. India’s steel capacity utilization will be affected by the duty In India, steel production capacity is much higher than the domestic demand. More so, the addition of new capacities is in the pipeline. Sudden levy of 15% export duty shall adversely affect capacity utilization and on-going investment in new capacity. The growth of public income (GDP) and investment rate shall decline; that India can’t afford. It is agreed that; in the past one or two years, steel prices have sky-rocketed and its impact is felt by the entire economy. But such inflated prices are due to high jumps in the price of coal and iron ore; that should be resolved. This will be the right choice over curbing exports by imposing taxes. Thermal coal prices must be brought back to 2019 levels The price of thermal coal must be restored almost to near to 2019-20 level which has now increased by almost three times, mainly due to stagnant production in past years clubbed with the high price of imported coal. Its major impact is on the core sector such as power, steel, metal and cements which travels to the entire economy. For this, India must immediately increase coal production by minimum 20% through regulatory easements. Incremental production may be incentivised through fiscal tools. India has sufficient reserves of non-coking thermal coal but has limited reserves of coking coal. Steel industry uses both types of coal. For reducing import dependency, future capacity in steel may be diverted to the non-coking coal based technology on the best effort basis. The sales of sub-grade iron ore Iron ore is the principal raw material for steel making. For reducing its price, the mineral taxes in the shape of royalty and auction premium should be levied on the basic price (excluding mineral taxes) instead of IBM price (including mineral taxes). More so, IBM price is not consistent with actual sale price in most cases. Hence, mineral taxes should be levied on the actual and basic sale price instead of IBM price similar to GST and excise duty. Prevailing system is causing a compounding effect of the mineral taxes. The price of iron ore has inflated to record high levels. Same is the case with other minerals including coal. The aforementioned method of taxation is a great impediment in selling low/sub-grade iron ore in particular. After paying mineral taxes, the basic sale price comes to below production cost and at times, to a negative sale price. Hence, the miners are reluctant in selling low/sub-grade iron ore. As a consequence, new beneficiation plants are not coming up as per economic needs of the nation. Hence, more than 300 million tons of low/sub-grade iron ore is accumulated in the mines causing wastage of precious mineral resources. By and large, India must choose appropriate policy tools for controlling inflation without sacrificing exports and GDP. For intermediate products like iron ore, a calibrated curb in export may be chosen keeping a balance between the exports, GDP and inflation. The writer is an economist and the author of the book’ ‘Turn Around India: 2020- Surmounting Past Legacy’ SEE ALSO: <a href="https://www.businessinsider.in/thelife/news/hul-ceo-sanjiv-mehta-coins-a-new-word-humbition-combining-humility-with-ambition/articleshow/92253088.cms">HUL CEO Sanjiv Mehta coins a new word - humbition, combining humility with ambition</a> <a href="https://www.businessinsider.in/business/corporates/news/theres-a-silver-lining-for-hotstar-in-losing-ipl-digital-rights-here-is-how-it-can-strengthen-its-counter-strategy/articleshow/92252808.cms">There’s a silver lining for Hotstar in losing IPL digital rights – here is how it can strengthen its counter-strategy</a>

India’s exports have a long way to go and the curbs are not helping

<ul><li><keyword id="87377" type="DOMAIN" weightage="20" keywordseo="Hindustan-Unilever-Ltd">Hindustan Unilever Ltd</keyword> (HUL), the Indian subsidiary of consumer goods giant <keyword id="45009" type="COMPANY" weightage="20" keywordseo="Unilever">Unilever</keyword>, has agreed to acquire <keyword id="78710" type="COMPANY" weightage="20" keywordseo="GlaxoSmithKline">GlaxoSmithKline</keyword>’s (GSK) key consumer nutrition brands in India including <keyword id="6373926" type="UNKNOWN" weightage="20" keywordseo="horlicks">Horlicks</keyword>, Maltova and Boost. </li><li>The deal, which is valued at ₹317 billion, will see HUL take over GSK’s consumer healthcare operations and merge them with itself. </li><li>In exchange, GSK will get a 5.7% stake in HUL, which is valued at ₹230 billion, and hence, become the second-largest shareholder in the company. </li><li>Once the deal is completed at the end of 2019, HUL is expected to become India’s largest publicly-listed food and refreshments company. </li></ul>After months of speculation and backroom meetings, Hindustan Unilever Ltd (HUL), the Indian subsidiary of consumer good giant Unilever, <a href="https://www.hul.co.in/news/press-releases/2018/hul-board-approves-merger-of-hul.html">announced </a>on 3 December that it had agreed to acquire GlaxoSmithKline’s (GSK) key consumer nutrition brands in India in what is said to be India’s largest consumer goods deal ever. The all-stock deal, which is valued at ₹317 billion ($4.5 billion), will see HUL take over GSK’s consumer healthcare operations and merge them with itself. Its offer to exchange 4.39 of its shares for every one share in GSK’s subsidiary reportedly beat out all-cash <a href="https://www.livemint.com/Companies/tlyjL7ec2HRAyB5r0vjRCK/Nestle-Unilever-Coke-make-bids-in-4-billionplus-GSK-Indi.html">bids</a> from the likes of Nestle, ITC and Coca Cola. The businesses being divested, which include health drinks Horlicks, Maltova and Boost, brought in a total of £406 million (₹36.4 billion) in sales in the nine months ended September 2018. Interestingly, the 140-year old Horlicks will be owned by HUL’s parent company, Unilever, and it will have to pay royalties on sales. The acquisition also includes GSK’s 82% holding in its Bangladesh unit as well as branding rights to products in various other markets. HUL will also distribute GSK’s over-the-counter and oral healthcare products like <keyword id="135142" type="COMPANY" weightage="20" keywordseo="crocin">Crocin</keyword> and Sensodyne for a period of five years as part of a preliminary move into the pharmaceuticals space. In exchange, GSK will get a 5.7% stake in HUL, which is valued at ₹230 billion, and hence, become the second-largest shareholder in the company. However, after the deal is completed at the end of 2019, by which time HUL will be India’s largest publicly-listed food and refreshments company, GSK plans <a href="https://www.gsk.com/en-gb/media/press-releases/gsk-to-divest-horlicks-and-other-consumer-healthcare-nutrition-products-to-unilever/">to sell its stake </a>in HUL in what is expected to be a very profitable cash-out. The deal is likely to shake up India’s consumer food goods sector and add pressure on HUL’s rivals in the FMCG space as it upgrades GSK’s brands and uses its widespread distribution network of nearly eight million outlets to maximise sales, especially in rural areas. The company already owns a number of prominent brands like Lipton, Kissan, Knorr and Magnum. SEE ALSO: <a href="https://www.businessinsider.in/here-are-the-top-10-acquisitions-to-have-happened-in-india/articleshow/64112322.cms">Here are the top 10 acquisitions to have happened in India</a> <a href="https://www.businessinsider.in/after-the-walmart-acquisition-heres-whats-in-store-from-flipkart/articleshow/64111313.cms">After the Walmart acquisition, here’s what’s in store from Flipkart</a>

Hindustan Unilever and GlaxoSmithKline’s domestic consumer unit are merging in what is said to be India’s largest consumer goods deal ever

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India's market regulator is giving royalty restrictions a second thought

Sriram Iyer

India’s exports have a long way to go and the curbs are not helping

R P Gupta

Hindustan Unilever and GlaxoSmithKline’s domestic consumer unit are merging in what is said to be India’s largest consumer goods deal ever

Dilsher Dhillon

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