Rising IPR imports draining India’s forex; 2021 outgo at $8.6 billion

When Shakespeare wrote in Romeo and Juliet – ‘What’s in the name? That which we call a Rose/By any other name would smell as sweet’ – brand names and trademarks probably did not hold much importance. And the concept of paying licence fee for the use of intellectual property did not exist; at least not in the way the World Intellectual Property Organisation (WIPO) envisages it.

As for India, using Intellectual Property Rights (IPR) of foreign entities is a costly affair, the one that has been escalating by leaps and bounds. In the last four decades, India’s payment for the use of intellectual property rose by 56,862% from $15.1 million in 1981 to $8,631.3 million ($8.6 billion) in 2021.

Analysis of the Balance of Payments (BOP) data released by the International Monetary Fund (IMF) reveals that, in 2021, Indians have spent about 10 times more on payment for using foreign owned Intellectual Property Rights (IPR) than what the entire world has paid for the use of Indian IPR.

In the year 2021, India paid $8,631.3 million for use of Intellectual Property Rights owned by foreign entities. On the other hand, the income derived from IPR owned by Indian entities was merely $870.1 million. However, the consolation is, four decades back India paid 80 times more for the use of foreign IPR as compared to what it earned from its own IPR.

India’s trade deficit in FY 2021 was $102.63 billion, 8.4% of this deficit may be attributed to money flowing out of the country on account of payment toward the use of foreign intellectual property rights.

What does payment for IPR include?

As per the IMF, accounting system payment for IPR includes payments made by the licensee to the owner, for the use of intellectual property, that may be described as fees, commissions, or royalties, etc.

The intellectual property may be industrial, or business related, such as patents, trademarks, copyrights, industrial processes and designs, including trade secrets, franchises, etc. These rights can arise from research and development, as well as from marketing. The other kinds of intellectual property are embodied in produced originals or prototypes, such as copyrights on books and manuscripts, computer software, cinematographic works, and sound recordings. They may also be related rights, such as for live performances and television, cable, or satellite broadcast.

However, software and audio-visual content that are licenced for use but not reproduction or distribution are classified as computer services, and audio-visual and related services, by IMF, for preparing the balance of payment data. These products, although largely intellectual property by nature, are considered under separate heads for IMF’s accounting purposes.

A practical example of payment for use of intellectual property may be the royalty paid by Hindustan Unilever to Unilever for the use of certain brand names like Magnum or Pears. Whereas the purchase of Microsoft 360 Office suits by an individual would be classified as computer services because the user is neither allowed to distribute the software nor reproduce it.

Why is India lagging in generating revenues from its intellectual properties?

In 1981, India paid about $15 million towards charges for use of foreign IPR. In 1991, that expense increased to about $49.5 million and about $317 million in 2001. The payment for using foreign IPR was about $2819 million in 2011, which tripled in 2021 to about $8,631 million.

On the other hand, India received $0.11 million in 1981, $0.61 million in 1991, $37 million in 2001, $302 million in 2011, $870 million in 2021, from foreign entities for its own IPRs.

Clearly, India is spending heavily by using foreign IPR, while not being able to earn much from its own intellectual properties. However, it should be noted that most of the Acts related to intellectual property, except for the Copyright Act, 1957, and Patents Act, 1970, (amended in 2005) came into being in 1999 or later. Even the Trademarks Act, 1999, post amendment in 2010, enabled Indian entities to register their trademarks in 97 countries by filing a single application form.

The ease of filing applications may have also contributed to the low number of IPR applications filed, and subsequently granted, as the filing process picked up speed only after the digital revolution in India. For instance, in 1997-1998 only 10,155 patent applications were filed, out of which only 1,844 were granted patents. In 2010-2011, 39,400 applications were filed, and 7,509 were granted patents; and in 2019-2020, 24,936 patents were granted out of 56,267 applications filed.

Even when it comes to brands, very few Indian trademarks are as strong as global corporate entities that have had a huge head-start as compared to Indian ones. Coca-Cola has existed since 1886. And Indian subsidiaries of these foreign conglomerates end up paying hefty royalties to their parent organisations for use of brand names such as these.

The way forward for India

Even though India may take time to catch up with countries like the U.S.A. that earned $1,24,827 million in 2021 from charges for the use of their intellectual property, it is ahead in terms of earnings garnered from computer, telecommunications, and information services. A large part of these services involve intellectual property, albeit they are classified differently for the purpose of IMF balance of payments data.

In 2021, India earned about $1,19,524 million by providing computer, telecommunications, and information services to the world, even as the U.S.A. earned $58,141 million. And Mainland China (which excludes Macau and Hong Kong) earned about $50,722 million from the same services, while it paid about $46,848 million towards use of intellectual property belonging to foreign entities, in 2021.

However, the IPR related payments are causing huge fiscal drain to India as the expenses on charges for the use of foreign intellectual properties have grown by 56,862% between 1981 and 2021. This calls for introspection by the government bodies, Indian business entities, creative enterprises, research institutions, and many more stakeholders responsible for the intellectual vigour of the nation.

Intellectual properties of a country are not just a reflection of its creativity and curiosity, it is also an echo of how the government, and its people, cherish those who have achieved greatness in the fields of business, arts, sciences, technology, and more, through their ingenuity and perseverance. Ease of gaining intellectual property rights, just compensation by the market for ingenious achievements, pride and respect for indigenous brands, all need to come together to fill the humongous gap between what India pays for other’s intellectual properties and what it gets paid for its IPRs from the world.