SEBI’s decision to delay the implementation of shareholder approval for royalty payments is yet another tug-of-war between the market regulator and the Ministry of Finance. The Indian economy needs both foreign direct investments as well as foreign portfolio inflows – one cannot exist at the cost of the other. The uncertainty over regulations does not augur well for investor confidence in India.
The Securities and Exchange Board of India’s (SEBI) proposal that companies need shareholder approval to pay over 2% of revenues in royalty was welcomed by investors. While this was at the behest of the Kotak Committee, SEBI saw the need to address the issue of indiscriminate royalty payments being made by some multinationals companies (MNCs) and Indian companies. As a result, it reduced the threshold to 2% of revenues, from the Kotak Committee recommended 5% of revenues. Having decided to implement the regulation with effect from 1 April 2019, SEBI postponed the implementation date to 30 June 2019 a little less than a week before the regulation was to kick in.
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A modified version of this article was published on BloombergQuint. The article can be accessed here https://www.msgp.pl/Iy1y0ww.