NEW DELHI – Tens of millions of dollars were within reach for M. Prabhakara Rao as he prepared in April 2015 to take his Indian cotton seed company public.

The Indian businessman already had $54 million in initial funding from an American private equity investor. Rao had also locked in a long-term licensing agreement with Monsanto Co, the world’s largest seed company, for the technology used in genetically modified cotton seeds that made up the majority of his annual sales.

Two months after publishing his initial public offering plan, Rao gambled. He sent one of his executives to negotiate a 10 percent cut in royalties with Monsanto. The multinational said no.

The outcome of that meeting ignited a corporate battle that has left Rao’s IPO plans in tatters and drawn in the Indian and U.S. governments. More ominously, the fight has disrupted India’s $1.8 billion-a-year seed industry, with Monsanto saying it may abandon the market.

Monsanto’s Indian joint venture last July withdrew its application to introduce a new generation of cotton seed technology to India. The existing version, in India for a decade, is losing effectiveness against bollworms, which can wipe out crops. If another company doesn’t step into the breach, agricultural economists warn the dispute could damage India’s cotton-growing sector - which recently surpassed China’s as the world’s biggest and last year accounted for more than a quarter of global output, with a value of over $8.5 billion.

To an outsider, Rao’s decision to take on Monsanto in a David-and-Goliath battle may seem hard to fathom. But the rules of doing business in India have changed. With the rise to power of Prime Minister Narendra Modi in 2014 on a groundswell of Hindu nationalism, newly assertive right-wing groups, suspicious of foreign influence and particularly outspoken against large multinationals like Monsanto, now hold sway in the government.

The leaders of these groups operate under the umbrella of the powerful Hindu nationalist group known as the Rashtriya Swayamsevak Sangh, or RSS, Hindi for “national volunteer organization.” They speak of returning India to an ancient, Hindu glory that was ravaged by foreign imperial powers. More pragmatically, they’re amassing power.

Modi himself first attended RSS meetings at the age of 8 and was propelled to power with the group’s help. A series of crucial ministries, including agriculture, are now run by ministers who are members of the RSS and its affiliates. Members of these Hindu nationalist groups also form a network of influential mandarins who seldom surface in public. They have the ear of the prime minister and those around him.

A lean, moustachioed man, Rao denies seeking the support of the RSS or working in tandem with the group, which wants indigenous varieties of cotton seed to replace Monsanto’s products. But RSS powerbrokers - including the agriculture minister himself - told Reuters that Rao approached them for help in his battle with Monsanto. And they say they were happy to weigh in.

The agriculture minister, longtime RSS member Radha Mohan Singh, says his decision to intervene in the dispute was driven by the need to serve the interests of all Indian farmers, not just Rao.

“It is important for all of us to unite to wage a war against Monsanto.” Prabhakar Kelkar, vice-president of the RSS farmers’ union

The timing of Singh’s actions, though, was telling. In the months after the meeting between Monsanto and Rao’s man in Mumbai, the agriculture ministry first challenged and then slashed the royalties Monsanto is able to charge in India. The ministry called for an antitrust investigation into alleged monopolistic practices by the company. It also floated the idea of a compulsory licensing regime that would all but force Monsanto and other firms to hand over their proprietary technology to major Indian seed companies that applied for licenses.

Prime Minister Modi hasn’t publicly commented on the matter. After the U.S. ambassador intervened last year, according to two people familiar with the dispute, the Indian government suspended the compulsory licensing proposal. The other measures remain in place.

After years of seeking more leverage with Monsanto, Rao found in the rise of Modi and the RSS an opportunity to challenge the company’s domination of the Indian market. It was against this backdrop that he dispatched senior company executive P. Sateesh Kumar, a Ph.D. in agricultural genetics, to Monsanto’s Mumbai headquarters in 2015.

At the time, Rao’s company, Nuziveedu Seeds Ltd, was behind on royalty payments to Monsanto and on its way to racking up, by Monsanto’s calculations, more than $20 million in debt. And its American investor, Blackstone Group LP, was waiting for the IPO to go through. Nonetheless, Kumar sat down in a corner conference room on the fifth floor and conveyed Rao’s demand for a reduction in royalties. Monsanto delivered its answer there and then: That wasn’t going to happen.

Before Kumar left the meeting on that hot June day, he paused. He told the executives from Monsanto and its Indian joint venture that there would be “consequences” for refusing Rao a discount, according to a letter Monsanto sent to the government and which was reviewed by Reuters. Kumar says he did not use such language.

In an interview in which he let loose peals of laughter, Rao pointed out that the first item under “Risk Factors” in the IPO prospectus for his company, of which he controls more than 80 percent of shares, was the possibility of his contract with Monsanto being disrupted. Still, he said, Monsanto made a mistake in thinking it had the upper hand.

Monsanto declined to answer questions on the role of the RSS in Rao’s campaign. “We conduct our business in an honest, transparent and respectful manner and continue to engage with stakeholders across the spectrum,” the company said.

Monsanto is backed in the dispute by chemical giant Bayer AG, which is in the process of buying the seed company for $66 billion. It also has the support of the local units of other seed heavyweights, including Dow Chemical Co and Syngenta AG. In August, these multinationals held a news conference in which they called for transparency in government regulation and licensing. Failure to do so, they warned, would endanger future investment in India.

An RSS spokesman referred queries about Rao and Monsanto to the RSS farmers’ union, the Bharatiya Kisan Sangh. Its vice president, a man named Prabhakar Kelkar, said the union was working with Rao, who had approached it to complain about Monsanto’s seed pricing.

“It is important for all of us to unite to wage a war against Monsanto. No one can do it alone, be it Rao or the” farmers’ union, Kelkar told Reuters. “We are cooperating with him because he is fighting a battle that is meant for greater good.”

Monsanto and Rao are now locked in a series of government complaints, litigation and arbitration.

Citing an Indian law that excludes seeds from being patented, Rao says Monsanto should never have been allowed to collect royalties after an initial payment to use its technology. Or, at the very least, he adds, prices should have been set by the government.

The technology currently licensed out by Monsanto is known as Bollgard II. The company received a patent in 2009 in India for Bollgard II’s ability to modify cotton seeds to include a microbe called Bacillus thuringiensis (Bt), which fortifies cotton plants against bollworms.

Monsanto says Rao and a small group of other seed companies demanding a reduction in royalties are simply trying to renege on contracts and money owed. Dhiraj Pant, who oversees tech development for Monsanto across Asia, said it would have been preferable if the Indian seed companies had not pushed for the government to step in. "It is unfortunate that these disputing companies sought policy interventions to address a bilateral matter," said Pant.

The RSS, which has its own farmer and labor unions, was formed in 1925 to campaign against British colonial rule. It seeks to instill a nationalist vision of India as a Hindu nation, despite large minority populations that include Muslims and Christians.

The group nurtured Modi’s rise – in his early days in the RSS he cleaned floors at a local chapter office. And the RSS helped form the ruling Bharatiya Janata Party (BJP).

But Modi and his RSS backers have differing views about the role of foreign multinationals. In his 13 years as chief minister of the western state of Gujarat, Modi was an early supporter of genetically modified cotton. His administration there allowed farmers to plant Monsanto-modified seeds, known as Bt cotton, before the technology received official approval in New Delhi.

His approach contradicted the RSS stance against multinationals operating in the agricultural sector, particularly when it comes to genetically modified crops.

The tension simmered for years. After Modi’s election in 2014, the RSS began its push.

A senior leader in the RSS farmers’ union, a man named Mohini Mohan Mishra, began holding study sessions with leaders in the ruling party and the Modi administration to argue against genetically modified crops. One of Mishra’s presentation slides pointed to the rise in popularity of organic food in the West.

Another slide said of Monsanto: “It created seed monopoly, a threat to seed sovereignty.”

Monsanto’s mistake was that it did not approach the RSS to plead its case, said Mishra in an interview at his office in central Delhi, which has peeling paint, dirty rugs and, in summer months, mosquitoes buzzing inside.

“It was the overconfidence of Monsanto that has destroyed their chances to do business in India,” said Mishra. “They failed to study and understand the RSS.”

Rao, meanwhile, was lobbying Modi’s government. Sometime in 2015, he met with Singh, the agriculture minister and RSS member.

The powerbrokers and officials of the Congress party that ruled India for most of its independent history tended to espouse secular ideology in clipped English accents that hinted at elite schooling at home and abroad. The RSS leadership speaks of rural roots and the virtues of the homegrown.

Singh is cut from that cloth. At the beginning of one interview he paused to fold a small wad of snuff in his left cheek as an attendant brought a metal spittoon.

He was not hard to convince that Monsanto was in the wrong, said Rao.

“The truth is that Monsanto was dominating the market, and that is not good for India’s farming practices,” said Singh. “We should have our own seeds to compete with them.”

After Monsanto declared Rao’s company in breach of payment obligations and terminated its contract in November 2015, Singh’s agriculture ministry moved swiftly.

The next month, the ministry established a panel to fix the price of genetically modified cotton seeds and the royalties Monsanto was allowed to collect.

Less than two weeks later, a junior minister under Singh’s command told parliament that the ministry had asked India’s antitrust regulator to consider investigating whether Monsanto abused its dominance in the marketplace. He said the National Seed Association of India, of which Rao is the president, had asked his ministry to intervene in the dispute. An antitrust investigation was formally launched in February last year.

On March 4, 2016, Monsanto’s chief executive for India put out a statement threatening to leave the country. Four days later, Singh’s ministry slashed the royalty paid by local firms to sellers of genetically modified cotton seed technology, a market dominated by Monsanto, by about 70 percent.

Two months later, the agriculture ministry proposed compulsory licensing for Monsanto’s technology. It was this move that prompted the U.S. ambassador to India at the time, Richard Verma, to approach Modi’s office. People familiar with the matter said Verma wrote to Modi’s principal secretary, Nripendra Misra, after the agriculture ministry did not respond to two previous letters. After the ambassador and Misra met, the government suspended the licensing measure.

During a visit to India last year, the U.S. commerce secretary, Penny Pritzker, said she had raised the Monsanto dispute with the government. “Companies will look to see how this is resolved because it sends a message about the seriousness of the current government to protect intellectual property,” said Pritzker, who stepped down this January.

An aide close to Modi declined to discuss whether the prime minister had personally intervened in the licensing dispute. He said the issue would “remain open” for the foreseeable future. “Sometimes the best decision is not to take a decision,” the aide said. The prime minister’s office did not answer questions from Reuters.

Asked about Rao and his fight with Monsanto, Singh denied granting the businessman any favors.

Kelkar, from the RSS farmers’ union, said the RSS had pushed for Singh to act against Monsanto. “In the previous regime we had to stand on the streets to launch anti-Monsanto protests,” Kelkar said. “But with this government we can sit and talk in a room – it’s because we all believe in the same agenda.”

The impact of the dispute on Monsanto’s bottom line became clear late last year when the company released its results: Sales of seeds and genetic traits for cotton dropped 16 percent, or $83 million, in the fiscal year ending August. That was “primarily due to lower average net selling price in India as a result of new government pricing policies,” the report said.

The dispute’s fallout could have grave implications, says Ashok Gulati, an agricultural economist who has advised the government on crop support prices in the past.

“The whole fiasco will dissuade global seed or technology companies from investing in India,” Gulati said. In the short term, he said, India might get by with a local alternative to genetically modified cotton. “But in the long-term, say beyond five years or so, we need a technology that can propel India’s cotton output. But then, political masters don’t look beyond immediate gains.”

Rao says that Monsanto and others deserve a return on their investment. But he wants royalty rates to be determined by government rules. In an interview, he pointed to the Protection of Plant Varieties and Farmers’ Rights Act, which gives the regulator the power to fix royalty rates. The government fails, however, to exercise that authority, enabling Monsanto to dictate terms, says Rao.

In October, the government announced a change in the board that oversees the plant varieties act. A new member had been added: M. Prabhakara Rao.

Additional reporting by Douglas Busvine in New Delhi.

Timeline: How Monsanto got outplayed The fight led by M. Prabhakara Rao, the head of Nuziveedu Seeds Ltd, against global seed giant Monsanto Co erupted in 2015. What at first looked like a David-and-Goliath showdown – Monsanto’s $15 billion of sales that year were roughly 80 times that of the firm headquartered in the south India city of Hyderabad – quickly became an example of how the rules of doing business have changed under Prime Minister Narendra Modi. 1

2

3

4

5

6

7

8

9

10 APRIL 2015 – Rao is poised to make tens of millions of dollars by taking his company public. In a prospectus for taking Nuziveedu Seeds public, the first item under risk factors is the possibility that his company could lose its agreements with Monsanto, brokered through its local joint venture. But there was something that wasn’t spelled out in the prospectus: India’s newly powerful right-wing factions, under the organizational umbrella of the Rashtriya Swayamsevak Sangh (RSS), or “national volunteer organization,” are suspicious of foreign influence and voice particular disdain for large international corporations. Like Monsanto. That gives Rao an opening. Even with the risk to his IPO, Rao makes a decision: He is going to take on Monsanto. JUNE 2015 – Only about three months after renewing his contract, Rao chooses to push his demand for a 10 percent cut in royalties he pays for Monsanto’s technology. Monsanto representatives tell one of his executives at a meeting in Mumbai that the answer is no. According to a subsequent letter sent to India’s agriculture ministry by Monsanto’s joint venture, the executive threatened there would be “consequences” for that decision. JULY 2015 – A group of nine seed companies, including Nuziveedu, writes to Monsanto’s joint venture in India saying they want to renegotiate the fees they pay. Their reasoning: some state courts have set the amounts that can be charged for seeds. The companies, in turn, want to reduce the fees they pay Monsanto. In August, the National Seed Association of India, an organization of which Rao is the president, writes to the director of Monsanto’s joint venture in India and makes a similar argument. The director responds that such contracts are bilateral and that they should approach Monsanto directly. Among those he cc’s: Rao. NOVEMBER 2015 – As tensions increase, Monsanto’s joint venture in India sends a notice to Rao’s company that it is terminating their agreement. At the time, Monsanto says, Nuziveedu owes almost 1.4 billion rupees, or more than $20 million. DECEMBER 2015 – With the relationship between Rao and Monsanto unraveling, India’s agriculture ministry, headed by a lifelong RSS member, steps into the fray. The first big move is an announcement of a cotton seed price regime. DECEMBER 2015 – The agriculture ministry then informs India’s upper house of parliament that “allegations of monopolistic practices” by Monsanto’s joint venture in India have been referred for investigation to the Competition Commission of India. MARCH 2016 – With its setbacks mounting, in particular government recommendations to reduce the amount paid for its seed technology, Monsanto says it will have to “reevaluate every aspect of our position in India.” MARCH 2016 – India’s junior agriculture minister at the time Sanjeev Balyan tells Reuters that Monsanto is free to leave India: “We're not scared if Monsanto leaves the country.” MAY 2016 – The Indian government passes a measure that will essentially force firms like Monsanto to hand over genetically modified crop technology to any qualified Indian firm that applies for it. After lobbying by the U.S. ambassador to India, the measure is frozen. Late 2016 – The costs of the battle have shown up in Monsanto’s bottom line. In its 2016 annual report, the company says its sales of seeds and genetic traits for cotton have dropped by 16 percent, or $83 million, in the fiscal year ending August.

————— By Mayank Bhardwaj, Rupam Jain and Tom Lasseter Photo editing: Altaf Bhat Graphics: Jin Wu Design: Catherine Tai Edited by Peter Hirschberg and Paritosh Bansal