Back To Socialism

It is really unbelievable that a free market economy-touting BJP government is cultivating a really bad habit of interfering in the market space to dictate business terms. Prime Minister Modi was repeatedly heard saying, during the 2014 election campaign, that government has no business to be in business. A lot of free market policy initiatives were expected of this government, but the BJP has shown a great deal of proclivity to stay the same old socialist course, for reasons best known to itself. This goes to show the power and strength of deep-rooted socialism in the country that even full-blown, free-market majority governments dare not touch it. Certain economic policies of the government are such a holy cow that by touching them, one can get seriously burnt.

Modi’s government took nearly two years to allow increased share of FDI in some select sectors that should have been done on day one in office. It is obvious that the BJP brings such changes in increments through a cabinet decision, but does not bring them to Parliament for full-blown discussion where it can defend its policies. If bold market reforms are not brought in and if socialist economic policies are not jettisoned, what is the point of this government being re-elected? How can it create the millions of jobs it promised? It will not be easy for it to explain failings on such important policy fronts, come next elections.

The Ministry of Agriculture and Farmers Welfare, Government of India, issued a Cotton Seeds Price (Control) Order (CSPCO) dated 7 December 2015, that will regulate cotton seed prices in all key cotton-growing states across India, which it suspended, and sought public comments as Modi was traveling to United States for some important trade negotiations, and for seeking U.S. support for India’s admission into the Nuclear Supplies Group. This price control order not only seeks to fix the maximum sale price (MSP) of Bt cotton hybrids, it also seeks to regulate the trait fee that is governed by private contracts.

This order provides an authority to a committee to regulate bilateral private contracts between the technology provider and the seed company (licensees) in violation of contract law between two private parties. A nine-member committee is to be constituted that will recommend the MSP of seeds on 31 March every year. The committee will also prescribe the format for license agreements for technology. This order reflects a lack of long-term vision for encouraging innovation in the most important area of India’s economic development and agriculture. Instead, it accomplishes exactly the opposite. This will be “No vikas with sab ke saath.”

While moves to rationalise the retail price of seeds may be having good-intentions, one should remember that the path to hell is also supposed to decked in flowers. The CSPCO, in its present form, constitutes a substantial over-reach on the part of the government in seeking to regulate private commercial contracts related to trait fees. The terms on which technology providers license patented technologies to cotton seed producers are determined through extensive negotiations. There appears to be no parallels for such intervention in any other industry save for pharmaceuticals on account of eminent domain to meet the exigencies of public health.

The order also enables the government to fix prices for existing as well as future patented technologies in which the technology innovators do not have any say. Overly regulated pricing of technology can negatively impact introduction of newer technologies needed by farmers, and there are plenty of very useful new technologies that are either about to be commercialised or are in the commercial pipeline. Similar attempts have been made by various state governments in India to control the cost of seeds, and the validity of these state indulgences have been challenged in courts.

Respect for IPR is essential for maintaining the agricultural innovation cycle across the industry and to ensure continued investment to support the introduction of new technologies beneficial to farmers. The CSPCO creates significant uncertainty with respect to existing and future technologies, and can seriously impact confidence in new technology introduction and investments. Laws safeguarding intellectual property need to be respected to ensure that the innovator’s interests are adequately protected. The innovator invests significant resources in getting a product/ technology into the market and also continues to funnel the returns for further research and development. Sectors that invest in IPs need safeguards to continue to make investments in the long term.

This goes against the vision of the Prime Minister, that research at labs should reach the hands of farmers so that we get the benefit of science and technology. This price control order substantially dilutes returns on investments, and will discourage private sector Research and Development investments, thereby, denying Indian farmers the access to and benefits of using newer productivity-enhancing technologies. And providing the latest technologies to Indian farmers is crucial to cater to the needs of a fast-growing nation’s food security. In order to ensure that technology providers continue to make risky investments to develop new technologies, the government must seek to avoid such actions and promote policies conducive to long-term investments.

Over 95 percent of Indian cotton farmers use Bt cotton seed, which is a testament to the value they see in the technology. The trait value comprises only one to two percent of the farmer’s total cost of cultivation in India. Bt cotton helped create Rs 68,371 crore of additional value for over 60 lakh cotton farmers by significantly reducing insecticide usage and increasing yield, not to mention the environmental benefits. According to The International Cotton Advisory Council, Indian farmers have experienced the greatest benefit from Bt cotton technologies compared to their peers around the world. The increased cotton production has had a positive cascading impact on ginning, cotton seed crushing, textile industry, exporters, and the domestic seed industry. Over the last decade, Bt cotton has played an important role in transforming India from a net cotton importer to the second largest producer of cotton globally.

On 12 November 2015, The Hon’ble Andhra Pradesh High Court once again clarified that input costs such as trait value cannot be fixed under the laws that empower the state governments to fix cotton seed prices. The Court also made absolute the earlier interim stay against that part of the Government Order RT No 238 dated 11 May 2015, by the government of Telangana, which sought to fix trait value. A well-established and mutually agreed mechanism for determining trait fee has been in place for years and the current value of trait fee recognises the overall MRP levels which have been in place since 2011.

The disputing licensees have outstanding payments to the tune of Rs 450 crore for cotton seed sales completed in Kharif 2015, for which they have collected money from farmers. These seed companies have tried to confuse relevant stakeholders in government and media by mischaracterising the dispute as something other than a brazen breach of contract in order to extract more favourable commercial terms than they have already negotiated. Simply put, local seed companies that licensed the Bt cotton technology saw unprecedented benefits from it, and have become greedy to their own peril.

Over the coming years, India will be the most populous country in the world with a significant part of her population remaining dependent on agriculture. In improving agriculture lies the hope for economic prosperity that will drive a billion dreams. Providing the latest technologies for Indian farmers therefore remains crucial. If India really wants to tackle the problems of climate change, like drought, it has no alternative to applying modern seed biotechnology, which will have to come from either private sector or public sector labs.

The public sector labs are nowhere near competitive to global biotech giants. While the industry strives to invest in innovation to meet the evolving needs of food and fibre crops, what farmers need is a supportive policy and commercial environment that will encourage overall growth and development. Artificial ceilings on seed prices in an inflationary environment significantly impact the ability of seed companies to invest in Research and Development, ultimately denying the farmers better products in the future.

There is always politics and lobbying in such policy decisions, and the BJP is no different as it has to buckle to the pressures of its own right wing organisations like the Bharateeya Kisan Sangh and Swadeshi Jagran Manch that behave like left-wing organisations in the field of agriculture. In addition, it is well known that organisations like the Indian National Seeds Association (INSA), another seed industry lobby whose members are the sub-licensees of the Bt cotton technology that has made them hundreds of crores of rupees’ profits are behind this policy decision. Most cotton seed selling companies of the INSA were small outfits whose net turnover never went beyond a couple of hundred crore. But once they got the license to develop and market Bt seeds of their own, and 95 percent of farmers growing Bt cotton became millionaires overnight, their turnovers leaped beyond their wildest imagination.

Some of the INSA members had even illegally appropriated Bt cotton seed technology and pretended to not know it, and finally agreed to regularise their illegal appropriation with the technology purveyor. They had tasted blood, and now they did not want to pay as much as was stipulated in their contracts. This is another nasty cultural trait of many Indians who backtrack on their contractual commitments, usually as an afterthought, at the last moment. Then they approached politicians in the states (read Andhra Pradesh, where most cotton seed companies are located) to cut the royalty payment, and even approached courts to serve their greed. Once Andhra Pradesh reduced Bt cotton seed prices, other states followed suit.

Indian seed companies have been dabbling in pseudo-research and development activities in modern biotechnology with not one of them anywhere close to delivering any product of their in-house research and development. These Indian mom-and-pop seed companies are totally incapable of developing any internationally competitive biotech products in another hundred years, but still want easy and cheap access to technology, and have prevailed upon the government to issue such an anti-progress order from the Ministry of Agriculture.

It is the same story with public sector laboratories who have all been dabbling in developing modern biotech seeds for Indian farmers for the past 20 years and not one of them has anything to offer. ICAR’s Central Cotton Research Institute at Nagpur claimed to have developed desi variety of Bt cotton for years, but had an egg on its face when their first introduction “Bikaneri Nerma” was a flop, and contained an unlicensed Bt gene from Monsanto. Former Minister Jairam Ramesh, another pseudo-pro-market aficionado, had said that if the Bt brinjal that he held back from commercialisation had been developed by an Indian public sector lab, he would have permitted it. He specifically said that he does not like to see an MNC like Monsanto monopolise the seed market in India, not knowing the difference between market domination and market monopoly.

The CEO of a well-known Hyderabad-based seed company said that they don’t need to invest in research and development as they can always access new technologies when MNCs license them out. If they don’t release new technologies in the country, then no one else will have access, and his company will have no competition to contend with. His idea was that, technology or no technology, his company has a certain niche market, and it will survive. This kind of defeatist attitude of some members of the INSA will make sure that India is never a globally competitive agricultural nation. Indian seed companies and public sector labs are full of bravado about their biotech research and development, but stealthily try to acquire genes and traits from MNCs or from overseas labs. In fact, most of them do not have a clue as to how to bring a biotech seed into commercialisation, given all sorts of anti-business policies. If our politicians do not realise this, and still talk of “sab ka saath, sab ka vikas”, it will be a cruel joke on the poor farmers of India. Modi’s government must really take a fresh look at its anti-progressive seed policy and set it right immediately. Otherwise, what is the difference between last 65 years of socialism and the alleged free-market approach of BJP?

And, what is NITI Aayog doing?