Incentivizing Agri-Seed R&D: Key to Food Security

New Delhi : The nation’s well-being depends critically on a reliable seed distribution system. With a growing population of about 1.4 billion people, India continues to face challenges with food and nutrition security. Climate change is just one factor exacerbating the effects of biotic and abiotic stresses on our agricultural and ecological systems. Recent crises in Sri Lanka and Bangladesh, and the ongoing crisis in Pakistan, are concrete examples of the need for increased investment in research & development to strengthen food security in the region, which poses a great risk to regional stability.

Organizations working to improve international security have been discussing potential threats and ways to lessen them through cooperation. However, this challenges the central tenet of the prevailing doctrine of Atmanirbhar Bharat, which is the idea of national and scientific sovereignty in food and agriculture, particularly with seeds and planting material. Moreover, stakeholders in India are looking for ways to mitigate these threats and cultivate opportunities at home in developing seeds that could strengthen the Indian agricultural value chain because of Prime Minister Narendra Modi’s emphasis on self-reliance.

Increased research and concentrated development of high-quality seeds was recognised as a necessary first step in this context across numerous engagements conducted by the Policy Advocacy Research Centre (PARC). Some crop improvement research is funded by the public sector, but the private sector’s role in the seed research industry has increased dramatically over the past two decades. Therefore, there has never been a more pressing need to incentivize private sector investment in this area. Research and development (R&D) spending by private seed companies worldwide averaged 10-12% of revenue in 2015, but in India it was closer to 3%. Given India’s aspirations to become a global superpower and agriculture’s central role in the global economy, incentivizing R&D with a focus on the Indian private seed sector could mitigate emerging risks to the food chain and have a positive impact on society as a whole.

The current state of national finances makes it impossible to subsidise private sector research and development of seeds. In addition, the government has been under pressure from a number of directions to rein in food price inflation, with negative effects on productivity and long-term planning as a frequent result. Low harvests and crop failures due to disease, pests, or climate change are warning signs that something needs to be done about the problems. Research conducted by PARC indicates that increasing tax rebates for expenses incurred by seed companies on R&D expenses would encourage enterprises to commit more resources. Most respondents also believed that MSME enterprises’ growth and survival were contingent on differentiation, which could only be achieved through more R&D, especially when interacting with MSME enterprises’ focus on R&D activities of indigenous and region-specific seed crops. Research and development tax credits for seeds (biotechnology) dropped from a high of 150% in 2016 to their current 100% in 2020. Seed research can be extremely dangerous because the desired results are not always obtained. As an added complication, the process can take up to 7 years because testing protocols need to be developed for the various agro-climatic zones found in India.

Restoring a 200% tax rebate on R&D expenses incurred by seed companies, as recommended by the PARC study, would provide the necessary cash flows to encourage seed companies to increase their investments in R&D at a time when subsidised research is not financially viable.

To ensure that the Indian seed sector maintains parity with their global & regional counterparts, most of whom have access to institutionalised foreign investment in R&D coupled with technology transfers, the reinstatement of a 200% tax rebate on R&D for Indian private seed sector companies would offer incentives for further increasing investments. As opined by the Federation of Seed Industry of India (FSII), the Indian seed industry is valued at approximately INR 22,000 crore and registering growth year-on-year, yet this accounts for a dismal 5% share of the global seed market. With the falling share in seed production by the Indian public seed sector from 42.72% in 2017-18 to 35.54% in 2020-21, the private seed sector share increased from 57.28% to 64.46% in the same period.

With multiple submissions on the need to develop seeds during deliberations prior to multiple state agriculture budgets across India during February & March 23 for the fiscal year 2023-24, farmer bodies & other concerned stakeholders have voiced concerns for better quality seeds that help them address their productivity, the resilience to climate change, amongst other factors. Beyond this, multiple debates and dialogues have been emerging with growing fervour amidst stakeholders within the bureaucracy, the political establishment, the agriculture value chain, policymakers and the wider public at large.

When contacted, Vikram Sankaranarayanan- Executive Director, PARC, stated that ‘unless we bring strong fiscal incentives for R&D, our study suggests that India’s competitiveness at the global stage would be lagging and Indian private seed companies, some of whom have prominent global operations, would commit more resources should they enjoy targeted incentives for investing in research to develop better seed varieties’. Furthermore, the lead economist for the PARC study, Banisha Begum Shaikh, opined that fiscal incentives supporting R&D would assist the private seed sector in further modernizing labs at par with their advanced economy counterparts.

In view of India’s ambitions of being competitive through building self-reliance & resilience coupled with ensuring future food & nutrition security, fiscal incentivisation of R&D through the reinstatement of a 200% tax rebate would be a progressive & affordable measure to undertake. This should be backed by a strong regulatory framework which will govern the processes for gaining access to the rebate in a transparent and auditable manner. It is also worth considering funding large-scale PPP projects between public and private research organizations on crops of national importance like Oilseeds and Pulses where the historical investments have been low. This two-pronged approach of encouraging private investment in seed research will help the country in this decade and beyond.