Royalty and risk

Welcome decision to rescind order on GM seeds royalty

The Union government has revoked the set of licensing guidelines it had issued on May 18 for the agricultural technology sector. This is a welcome step, even though the idea that such guidelines had been proposed and notified was a cause for concern because of the impact they would have had on the genetically modified sector. It is important to note that the proposed guidelines arose out of a sharp disagreement for some time between the government and the world's largest seed company, Monsanto, over the local prices of GM seeds in India, in particular for Bt-cotton. This form of GM seed has received wide acceptance among Indian farmers, and almost 90 per cent of the area under cotton uses Monsanto-developed seeds. Last December, the agriculture ministry notified the Cotton Seeds Price (Control) Order, which returned cotton seeds to the ambit of the Essential Commodities Act, essentially making their prices a matter of government intervention. Subsequently, it had notified new licensing guidelines, which were rightly seen as another step in this undeclared dispute, since they would have essentially capped the royalty payments from Indian seed farms for all new varieties of Bt-cotton seeds to Monsanto's local joint venture (with Maharashtra Hybrid Seeds).

With the rescinding of the earlier notification on the royalty cap, the immediate concerns are over, but there is no clarity yet on how the government wishes to approach the question of royalties for seeds technology. This is disquieting news at several levels. For one, it is not certain that the government has completely given up the idea of imposing a cap on the amount that the developer of a technology should charge those using it. The implications for other IPR-heavy sectors, therefore, are worrying. After all, Bt-cotton was not developed with financial support from the Indian government. If the government were concerned about distress in the cotton sector - and that is its right and its duty - then it should have found some other way to target assistance to cotton farmers and avoided imposing a cap on royalty. It is far from sensible to use instead a blunt instrument, namely intervention in purely commercial agreements.

The government should now follow up its decision to revoke the notification on a royalty cap on new technologies for genetically modified seeds with a clear policy on how it wishes to treat this sector in the future. Any such move would have ramifications beyond the specific dispute with Monsanto about GM seed prices. Certainly, if royalties are being used - as they have been in certain cases in India - to evade international transfer pricing regulations, then it may be expedient to examine royalty payments in an ongoing and prospective manner. Any such decision should be taken not only transparently but also prospectively so that it does not raise questions in investors' minds about the predictability and stability of the policy environment. An important part of making India an easier place to do business is to ensure that risks to investment from arbitrary government action are reduced.