By Mayank Bhardwaj

NEW DELHI (Reuters) - Monsanto Co, the world's biggest seed company, threatened to pull out of India on Friday if the government imposed a big cut in royalties that local firms pay for its genetically modified cotton seeds.

Mahyco Monsanto Biotech (India)(MMB), a joint venture with India's Mahyco, licenses a gene that produces its own pesticide to a number of local seed companies in lieu of royalties and an upfront payment. MMB also markets the seeds directly, though the local licensees together command 90 percent of the market.

Acting on complaints of local seeds companies that MMB was charging high fees, the farm ministry last year formed a committee to look into the matter.

The committee has now recommended about a 70 percent cut in royalty, or trait fee, that the seed companies pay to MMB, government sources said. The farm ministry is yet to take a decision on the committee's recommendation.

"If the committee recommends imposing a sharp, mandatory cut in the trait fees paid on Bt-cotton seeds, MMB will have no choice but to re-evaluate every aspect of our position in India," Shilpa Divekar Nirula, Monsanto's chief executive for the India region, said in a statement.

"It is difficult for MMB to justify bringing new technologies into India in an environment where such arbitrary and innovation stifling government interventions make it impossible to recoup research and development investments," she said.

Shares of Monsanto India dropped as much as 7 pct to a near 2-year low before ending down 2.4 pct.

MMB does not publish revenue figures or say how much it contributes to Monsanto's overall revenue.

Separately, MMB has filed a case in a Delhi court, challenging the authority of the committee to determine the trade fee agreed upon by MMB and a number of Indian seed companies

In a partnership with Mahyco, U.S.-based Monsanto launched a GM cotton variety in India in 2002 despite opposition from critics who questioned its safety, helping transform the country into the world's top producer and second-largest exporter of the fiber.

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In a ruling last month, the Competition Commission of India, the antitrust regulator, said there were indications that MMB had abused its dominant position in the country and asked its director general to complete an investigation within two months.

The government-appointed committee has also recommended cutting Bt cotton seed prices to about 800 rupees for a packet of 400 grams. Currently Bt cotton seeds are being sold between 830 and 1100 rupees in different parts of the country.

(Editing by Sanjeev Miglani and Adrian Croft)