NEW DELHI, March 24 (Reuters) - India has axed the royalties that local seed companies pay to German drugmaker Bayer AG for Monsanto’s genetically modified (GM) cotton, a government order said, after cutting them back since 2016.

More than 45 local cotton seed companies pay royalties to Monsanto, acquired by Bayer in 2018, for GM cotton using a gene that produces its own pesticide.

The American company was headquartered in St. Louis before Bayer bought it in a $63 billion deal in 2018 and India’s decision to start reducing the royalties triggered a long-running feud.

The U.S. ambassador to India at the time, Richard Verma, approached Indian Prime Minister Narendra Modi’s office, but India kept lowering the royalties.

After cutting the royalties, or trait fees, paid by Indian seed companies to Bayer’s Monsanto unit by 49% to 20 rupees for a packet of 450 grams in 2019, the farm ministry on Tuesday scrapped the royalty altogether, dealing a fresh blow to the German company.

Bayer said the decision was disappointing.

“While it is disappointing to see the full elimination of trait fees, we will, in collaboration with other technology providers, continue to highlight the need to maintain a reasonable level of trait fees,” a Bayer spokesman said.

The decision could dissuade other foreign seed companies from scaling up their investment in the sector.

New Delhi approved Monsanto’s GM cotton seed trait, the only lab-altered crop allowed in India, in 2003 and an upgraded variety in 2006, helping transform the country into the world’s top producer and second-largest exporter of the fibre.

Monsanto’s GM cotton seed technology went on to dominate 90% of India’s cotton acreage.

However, Monsanto became embroiled in a dispute with Indian seed company Nuziveedu Seeds Ltd (NSL), which argued that India’s Patent Act did not allow Monsanto any patent cover for its GM cotton. Monsanto and NSL are engaged in a maze of arbitration proceedings and legal cases.

Hindu nationalist groups close to Modi's ruling Bharatiya Janata Party have opposed both Monsanto and GM technology in India's agriculture. (reut.rs/2p7eIrE)

Other than cutting Monsanto’s royalties, the government raised the prices of GM cotton seeds by 2.8% to 730 rupees ($10.16) a packet. (Reporting by Mayank Bhardwaj; editing by Philippa Fletcher)