IN recent months, global investors have been wooed furiously by top government leaders, both at the centre and in the state, urging them to set up manufacturing facilities or other businesses.

State governments have also been splurging money on hosting ‘investor summits’ and other roadshows, both in India and abroad, in a bid to attract global investment.

Last week’s decision by the Indian government to slash royalties paid by local seed firms to American seed major Monsanto, and to impose curbs on the sale price of genetically-modified cotton seeds may wash away some of the gloss on the investment proposals that governments have been floating in recent months.

Last week, the Indian government slashed royalty fees paid to Monsanto by 74pc and fixed a ceiling of Rs800 for a packet of 400 grams, as against the prevailing price of about Rs1,100/packet in some parts of the country

Senior ministers of the Indian government, a multitude of chief ministers and top bureaucrats have been courting foreign investors, urging them to ‘Make in India,’ (or in Maharashtra, Haryana, or some other state, as the case might be). Their aggressive spiel and the concomitant publicity at international meets has seen many investors with deep pockets visit the country and consider the possibility of setting up operations.

But last week’s decision — which has both been widely welcomed and even criticised by different business groups and lobbies — would have caused a major dent in the country’s image as an investor-friendly nation. Leaving aside the merits of the case, the move is unlikely to impress investors, many of who would now be hesitant to loosen their purse strings.

Way back in 2002, India approved GM cotton technology developed by Monsanto.

The Bacillus thuringiensis (Bt) cotton seed gene was incorporated into hybrids, enabling farmers to deploy the seeds to battle the bollworm pest, while simultaneously reducing the use of pesticides.

The results were dramatic: India, which was a net importer of cotton, emerged to become the world’s second-largest producer and exporter of cotton. Cotton production almost trebled to more than 36m bales after the introduction of Bt cotton. About 95pc of the 12m-plus hectares of cotton growing area is under Bt cover at present.

Many Indian farmers adopted the technology and saw dramatic improvements in their earnings. .

India, however, has resisted the introduction of other GM crops including for brinjals and corn. While the biotechnology and seeds industries have been pushing for more GM crops, environmentalists and activists, besides many politicians have been opposed to their introduction.

Monsanto had set up a joint venture — Maharashtra Hybrid Seeds Co (Mahyco) — which licensed the Bt genes to about 50 cottonseed players across the country. These firms have to pay a royalty — or ‘trait’ fees — to Monsanto for use of the technology.

There have always been critics who accused the American multinational of exploiting Indian farmers. As farm distress rose in many parts of the country — especially following poor rains in two successive years — there were demands for curbs on ‘profiteering’ by Monsanto.

THE National Seed Association of India (NSAI) accused the American giant of collecting hefty royalties amounting to over Rs60bn. It also said that the technology was losing its efficacy, as the seeds were unable to resist pink bollworm attacks.

In December, the central government set up a committee, following the issue of a Cotton Price Control Order, which would set up a uniform national price for cotton hybrids, including Bt cotton. This followed complaints that the license fees had not been lowered despite a cut in the retail sale price of cotton.

The government obviously did not want to be seen favouring a multinational, especially when the interests of millions of cotton farmers were at stake.

An estimated 8m cotton farmers use the Bt seeds. The price control order aimed to bring about uniformity in the price of GM cotton seeds all over India.

But Monsanto and some of the seed companies filed a plea in a high court, claiming that the central government did not have the right to interfere in the price agreed upon by the two parties. The government hit back and approached the Competition Commission of India, accusing the seed companies of indulging in unfair trade practices. The watchdog then launched a probe.

The government committee also suggested a sharp cut in royalties paid by local firms to Monsanto for use of technology. Last week, the government slashed royalty fees by 74pc and also ordered further cuts in the price of seeds. The government fixed a ceiling of Rs800 for a packet of 400 grams, as against the prevailing price of about Rs1,100/packet in some parts of the country.

With the government imposing curbs on it, Monsanto has warned that it would be forced to pull out of India and also stop deploying new technologies that would have helped boost cotton production. It also lashed out at the ‘arbitrary and innovation stifling’ regulatory environment in the country.

The Association of Biotechnology Led Enterprises was also critical of the government’s decision. “By slashing trait fees, the government has clearly shown that it is going for short-term populist measures rather than supporting innovation in the long term,” said Shivendra Bajaj, executive director of the agriculture group of the association. “The decision will be detrimental in the long run as companies may have to reconsider their investments in seed-based R&D in the country due to the current uncertain environment.”

Critics of the government move said it would underline India’s failure to protect intellectual rights, and justify demands by many western nations calling for non-trade barriers. Some have slammed the government for arbitrarily fixing prices of seeds just to benefit the domestic seeds industry.

Published in Dawn, Business & Finance weekly, March 14th, 2016