The Foreign Investment Promotion Board proposes to remove the cap on royalty payments by Indian companies to their parents abroad.
The cap on technical/know-how fees for the use of technology by Indian companies is also likely to be relaxed.
The proposal is scheduled to be discussed by the core group of the FIPB at its next meeting, but the date has not yet been finalised.
Currently, royalty payments to offshore parent companies are capped at eight per cent of exports and five per cent of domestic sales in the automatic route, irrespective of the nature of foreign shareholding in the company.
In an internal note, the FIPB has argued that a cap on such payments doesn't make any sense.
"In view of the comfortable foreign exchange situation, this seems to be a complete anachronism," the FIPB says, adding further that "the issue of fixation of royalty payments, technical fees etc should be left to the commercial judgment of the collaborating firms and the government should not be concerned at all."
The country's central bank had earlier endorsed this view, stating, "these restrictions should be done away with and such matters should not come before the FIPB at all."
Currently, royalty payments to offshore parent companies are capped at eight per cent of exports and five per cent of domestic sales in the automatic route, irrespective of the nature of foreign shareholding in the company.
The department of industrial policy and promotion permits domestic companies to issue equity shares in lieu of payments of a lumpsum fee, royalty and external commercial borrowings in convertible foreign currency, subject to meeting all the applicable tax liabilities and procedures.
The government has constantly been reviewing its policy on payment of royalties under the Foreign Technology Collaboration channel.
The DIPP had liberalised the FTC policy in June this year, permitting all companies to pay royalty to their foreign partners, irrespective of the extent of foreign shareholding, and relaxing the earlier condition which allowed only wholly owned subsidiaries to pay royalty to their parents.
It also removed restriction on the duration of the royalty payments, thereby encouraging foreign companies to lend their technology to Indian companies for unlimited periods.