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UPDATE 1-India set to cut Monsanto's GM cotton seed royalties by 20 pct -sources

-sources@ (Adds comments from Indian seed makers)

NEW DELHI, March 7 (Reuters) - India is likely to impose another cut to Monsanto royalties paid by domestic companies for its genetically modified (GM) cotton seeds, industry and government sources said.

The latest reduction risks another row with the U.S. company, the world's biggest seed maker, which threatened to leave India in 2016 when the government cut its royalties by more than 70 percent.

This time the government plans to reduce royalties by 20.4 percent to compensate Indian seed makers and also plans to cut prices of GM cotton seeds to help farmers whose fields have been ravaged by pest attacks, the sources said.

The government will finalise its decision soon, the sources said without giving precise timescale.

A Monsanto spokesman said he wasn't aware of any such government order.

The government is expected to lower the prices of GM cotton seeds by 7.5 percent to 740 Indian rupee ($11) for a packet of 450 grams, according to the industry and government sources, who asked not to be identified.

Farmers buy GM cotton seeds from Indian seedmakers who pay to use Monsanto's proprietary technology to produce them.

Cotton seed prices have come down drastically in the past few years, but fuel, labour and supply chain costs have risen sharply, squeezing margins of most seed makers, said Kalyan Goswami, director general of the National Seed Association of India producers' body.

Seed prices need to go up to sustain the GM cotton business in India, Goswami added.

More than 90 percent of India's cotton crop is genetically modified. Last year the government kept both the royalties and the retail prices of GM cotton seeds unchanged.

In 2017/18 India's cotton output is set to rise by 9.3 percent but still short of the record high predicted by industry analysts because boll worm caused damage in some regions.

New Delhi approved the first GM cotton seed trait in 2003 and an upgraded variety in 2006, helping to transform the country into the world's top producer and second-largest exporter of the fibre. ($1 = 64.8800 Indian rupees) (Reporting by Mayank Bhardwaj Editing by Susan Fenton and David Goodman)