India's cotton farmers won't see cheaper seeds.

Photographer: Adeel Halim/Bloomberg

Innovators Beware in India

Mihir Sharma is a Bloomberg View columnist. He was a columnist for the Indian Express and the Business Standard, and he is the author of “Restart: The Last Chance for the Indian Economy.”
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Monsanto's many battles with the Indian government have typically been cast as clashes between poor Indian farmers and a giant multinational that's overcharging for its genetically modified seeds. And certainly, the U.S. agriculture giant isn't the most sympathetic of companies. Its seeds are indeed expensive and, in the case of cotton, no longer deliver the returns promised as resistance builds up.

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The latest confrontation, however, reflects other fights -- between domestic companies and foreign ones, as well as between users and creators of intellectual-property. And India is backing the wrong side.

Last week, Monsanto’s relationship with the Indian government hit a new low when the company announced it wouldn't be introducing a newer and more effective GM cotton strain into India. This followed upon a March threat in which the company said it would “reevaluate” its business in India because “arbitrary and innovation-stifling government interventions make it impossible to recoup research and development investments."

The government, which has been working hard to promote local substitutes for Monsanto's GM cotton, has made a show of not being intimidated. Earlier in the year, India’s junior agriculture minister said, “We’re not scared if Monsanto leaves the country." Activists -- including those associated with India’s right-wing ruling Bharatiya Janata Party -- cheered the comments.

Unfortunately, in its campaign to lessen farmers' reliance on Monsanto seeds, the government has chosen to use the bluntest of instruments: bullying and expropriation. For example, it’s decided to cap the royalty payments that Indian seed companies pay Monsanto for the use of its technology. “Trait value” payments from Monsanto’s 48 licensees in India are set to come down by 74 percent as a result.

Worse, in order to give itself the power to impose the cap, the government declared cotton seeds an “essential commodity." This brought into force the draconian provisions of a socialist-era price control law, including the power to arrest company executives for “hoarding.” Prime Minister Narendra Modi’s government has consistently sought to extend the law in question -- the Essential Commodities Act -- and to make it ever more stringent; an executive charged with a crime under the Act would no longer qualify automatically for bail, for example. In doing so, Modi has been following the recommendations of a committee of state chief ministers he himself headed in 2010, when he ran the cotton-growing state of Gujarat.

Worst of all, the government recently announced a new licensing framework that essentially ensures license fees for GM technology will decline by 10 percent every year, and allows the government to decide at any point that domestic seed companies no longer need to pay the intellectual property owner anything. The shift was first announced in May, but was temporarily suspended “for consultation.” With Modi due to travel to the U.S. in June, and the government may have wanted to forestall an embarrassing intellectual-property dispute.

None of this is likely to improve the lives of Indian farmers. Although Monsanto’s license fees have been slashed drastically, the seeds they buy aren't noticeably cheaper. Instead the policy benefits India’s politically powerful domestic seed companies, who are sick of paying Monsanto for its technology. Some of them, like the Blackstone Group-backed Nuziveedu Seeds, have actually been taken to court by Monsanto for refusing to pay license fees. It’s this long-running dispute that the government is trying to influence in favor of domestic firms.

The dangers of the government's strategy are obvious. For one, its actions run the risk of reversing India’s revolution in cotton production, which by some estimates has earned the country $55 billion in terms of trade and allowed its farmers to be paid for an additional 140 million bales of cotton.

Even more worryingly, a precedent has been set that threatens all biotechnology companies and other innovators. This goes beyond the “compulsory licensing” provisions that developing countries can use to expropriate intellectual property rights during an emergency. The Indian government appears intent on taking technology from a foreign company and passing it on to domestic firms, whether that company likes it or not. India's even violated one of the central provisions of its own proposed framework on intellectual property by denying the rights-holder an appeal.

Few tears will be shed if Monsanto makes good on its years of threats and leaves India. But that would be the wrong reaction. What's happened to Monsanto could happen to any foreign company and any innovator. Once that realization sinks in, India will pay the heavier price.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mihir Sharma at m.s.sharma@gmail.com

To contact the editor responsible for this story:
Nisid Hajari at nhajari@bloomberg.net