HOW ARE FOREIGN TECHNOLOGY AGREEMENTS ARE APPROVED?

Internationalization of technologies and production is becoming a common phenomenon for attaining and retaining the global competitiveness. Technology is an important ingredient of the development mix and an important aspect of the international economic gap is the technological gap. Technology transfer is the term used to describe the processes by which technological knowledge moves within or between organizations.[1] International technology transfer refers to the way in which this occurs between countries.[2] Technology transfer is an important means by which developing countries gain access to technologies that are new to them. For example, the acquisition of foreign technologies by East Asian newly industrialized countries, coupled with domestic ‘technological learning’ – efforts to accumulate the capability to change technologies – have been key factors in their rapid technological and economic development.

Most technology transfer has between developed and developing countries through commercial technology transfers by the private sector. These include transfers through foreign direct investment, foreign licensing, turnkey projects, technical consultancy, capital goods acquisition, international subcontracting and joint ventures.[3]

Government of India’s Technology Transfer policy:

For promoting technological capability and competitiveness of the Indian industry, acquisition of foreign technology is encouraged through foreign technology collaboration agreements. Induction of knowledge through such collaborations has permitted either through automatic route or with prior Government approval.[4]

Scope of Technology Collaboration:

The terms of payment under foreign technology collaboration, which are eligible for approval through the automatic route and by the Government approval route, includes technical know how fees, payment for design and drawing, payment for engineering service and royalty.[5]

Payments for hiring of foreign technicians, deputation of Indian technicians aboard, and testing of indigenous raw material, products, and indigenously developed technology in foreign countries has governed by separate RBI procedures and rules pertaining to current account transactions and are not covered by the foreign technology collaboration approval.[6]

Automatic Route: Payment for foreign technology coloration by Indian companies are allowed under the automatic route subject to the following limits:

  1. The lump sum payments not exceeding US$2 million
  2. Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for exports, without any restriction on the duration of the royalty payments.[7]

Authorized dealers appointed by the Reserve bank of India (RBI) allow remittances for royalty payment of lump-sum fee and remittance for use of Trademark/Franchise in India within the limits prescribed under the automatic route. RBI’s prior approval is required for remittance towards purchase of trade mark/franchise.

Government Approval – Project Approval Board (PAB): Royalty payment in the following cases requires prior Government approval (through PAB when only technical collaboration is proposed and FIPB where both financial & technical collaboration are proposed):

  1. Sectors/activities which are not on the automatic route for FDI, or
  2. Proposals not meeting any of the parameters for automatic approval.[8]

Proposals for foreign technology transfer/collaboration not covered under the automatic route shall considered by the PAB in the department of Industrial Policy and Promotion. Application in such cases has submitted in Form FC-IL to the secretary for industrial Assistance.

The prior policy freely allowed payments and remittances up to a lumpsum fee of $2million and royalty payments of 5% on domestic sales and 8% on exports. Payments above this required regulatory approval. The new policy removes any such restrictions on payments for royalty, lumpsum fee for transfer of technology and payments for use of trademark/brand name and puts it on the automatic route i.e. without any approval of the Government of India.[9] The relaxation of the decades old policy is part of liberalization and deregulation of Indian foreign investment regime, which is working well for India considering that even in 2008, with the world in an economic slump, India attracted over $25billion in foreign investment[10]. Unrestricted foreign collaboration agreements in the field of technology, provides easier access to the latest technology from around the world and thus are greatly beneficial for the development of India’s own technology industries.

[1] http://www.iimahd.ernet.in/publications/data/2008-01-07Subbarao.pdf

[2] Id.

[3] http://business.mapsofindia.com/fdi-india/investing-country/foreign-technology-agreements.html

[4] Supra note 1.

[5] http://dipp.gov.in/English/Publications/Manuals/FDI_Manual_Latset_chapter_3.pdf

[6] Id.

[7] http://www.iimahd.ernet.in/publications/data/2008-01-07Subbarao.pdf

[8] Id.

[9] http://spicyip.com/2009/12/liberalization-of-foreign-technology.html

[10] Id.

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