Page 59 - DMGT401Business Environment

Business Environment

Notes Payment of royalty upto 2% for exports and 1% for domestic sales is allowed under
the automatic route on use of trademarks and brand names of the foreign
collaborators without technology transfer. In case of technology transfer, payment
of royalty subsumes the payment of royalty for use of trademark and brand name of
the foreign collaborator.

Example: Royalty on brand name/trade mark shall be paid as a percentage of net sales,
viz., gross sales less agents'/dealers' commission, transport cost, including ocean freight,
insurance, duties, taxes and other charges, and cost of raw materials, parts, components imported
from the foreign licensor or its subsidiary/affiliated company.
Payment of royalty upto 8% on exports and 5% on domestic sales by wholly owned
subsidiaries to offshore parent companies is allowed under the automatic route
without any restriction on the duration of royalty payments.
(b) Government Approval: For the following categories, government approval would be
necessary:
(i) Proposals attracting compulsory licensing
(ii) Items of manufacture reserved for the small scale sector

(iii) Proposals involving any previous joint venture, or technology transfer/
trademark agreement in the same or allied field in India. The definition of
"same" and "allied" field would be as per 4 digit NIC 1987 Code and
3 digit NIC 1987 Code
(iv) Extension of foreign technology collaboration agreements (including those
cases which may have received automatic approval in the first instance)
(v) Proposals not meeting any or all of the parameters for automatic approval.
4. Public Sector Policy: Since the Industrial Policy of 1956, the public sector was playing a
strategic role in Indian economy. They were enjoying a preferential treatment from the
government, and played a significant role in the GDP of the country. The 1956 policy
reserved 17 industries for the Public Sector but the 1991 policy reduced this number to
eight, which was further reduced to two.

The performance of public sector was far from satisfactory. Most of the PSUs posted losses.

Example: Even companies like SAIL, which enjoyed high demand posted losses year
after year.
Lack of accountability, political interference, excessive labour, poor project management,
inadequate attention to R&D, socialist objectives, etc., lead to even the erosion of paid up
capital of some PSUs.

The 1991 industrial policy took the following steps to improve the conditions of PSUs:
(a) Memorandum of Understanding: Memorandums of understanding were signed with
PSUs, giving more autonomy and accountability to PSUs. It was a contract between
the government and PSUs. It was started in 1987-88 with four public enterprises.
Presently more than 100 PSUs are covered by the MOU.

(b) BIFR: Sick unviable units were referred to the Board of Industrial and Financial
Reconstruction (BIFR) to advice the government on whether to invest further in
PSUs to close them down or to divest govt. stake in them. The National Renewal

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