In FY13, for instance, 71 MNCs (whose financial numbers are available till 2012-13) earned a combined Rs 4,838 crore (Rs 48.38 billion) from their Indian subsidiaries in the form of royalty and technical fees.
In comparison, their total dividend income was Rs 4,529 crore (Rs 45.29 billion).
It was the other way round till FY10, when MNCs’ dividend income from their Indian subsidiaries exceeded royalty income.
In the past five years, royalty payments by these companies have grown at a compound annual growth rate of 31.1 per cent, much faster than revenue and profit growth.
Net sales during the period expanded at 15 per cent yearly and the annual growth in net profit was even lower, at 10.3 per cent.
This was largely due to an increase in royalty payout by the MNCs’ subsidiaries.
In six years, royalty payments have doubled from 1.3 per cent in FY08 to 2.5 per cent in FY13.
This is likely to rise further, as many subsidiaries such as Hindustan Unilever, ACC and Ambuja Cement step up royalty payment as asked for by their parents.
Maruti Suzuki has the largest royalty bill in India, followed by Hindustan Unilever Ltd and Nestle. Maruti also tops the chart in royalty rate, followed by Colgate-Palmolive.
Experts say royalty payment is standard practice globally. “MNCs all over the globe, including Indian companies, charge royalty from their foreign subsidiaries for using parent services.
“Access to parents’ brands, technology and processes helps subsidiaries scale up faster and they are well within their rights to ask for a share of the revenue.
“The rate of royalty payment is, however, debatable and varies from company to company,” says Avinash Gupta, senior director
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