A number of once well-known government-owned companies — Allwyn, HMT, ECIL, Hindustan Zinc, ITI, ITDC Hotels and scores of others — have been closed, and/or sold over the decades, with Air India being the latest. A hundred other historically loss-making PSUs are now in the queue to be hived off. We are realising that ‘the government has no business being in business’ — to quote Prime Minister Narendra Modi.
But this lesson isn’t being applied to the government-controlled sandalwood industry — the home of sandalwood production, now in its death throes. From being a world leader with a production of 4,000 tonnes in 1950, the production fell to 2,000 tonnes in 1990 and is about 400 tonnes today, of which Karnataka alone accounts for about 70 per cent. The reasons for this decline are not far to seek. Ever since Tipu Sultan conferred royal patronage to sandalwood in 1792, the tree’s plantation and cultivation have been under government control.
With the world market for wood at about 7,000 tonnes annually, and the international price of sandalwood oil at about Rs 1.5 lakh per kg, Australia has made serious inroads into this market by growing Indian sandalwood in large, genetically improved and scientifically managed farms. Indian recovery in the foreseeable future seems a tall order.
Why this decline? Indian demand for sandalwood had always been high, driven by religious, commercial, industrial and medical uses, which explains its high price. This historically attracted the attention of governments and gangsters alike. As governments tightened their grip on this trade and drove the prices up, gangsters tightened their grip on smuggling. This led the government to declare plantation and trading in sandalwood illegal, thus squeezing the supply of the wood further, causing the prices to shoot to astronomical levels, incentivising the sandalwood smugglers all the more.
Forgotten entirely is the lesson of Economics 101 that when the demand-supply mismatch of a commodity drives up the price, the best way to bring the price down is to decontrol the commodity and allow its supply to increase, rather than restrict production even more, which is bound to have the precise opposite effect, compounding the original problem.
There have been calls in Karnataka by private growers for loosening the state’s grip on the sandalwood pricing. Karnataka and some other states have been trying to usher in some changes to the environment of sandalwood cultivation, but these are mostly half-hearted attempts — so half-hearted that even on the government’s website, the latest sandalwood production statistics available are for 2015 (https://nmpb.nic.in/species/sandalwood).
Today, in most states, while one may plant a sandalwood tree privately, one cannot cut the trees without suffering elaborate formalities of taking the local government’s permission. And when the permission is granted, one is obliged to sell it to the government at a pre-decided price, less, the cost of the government cutting and towing away the tree. As a consequence, while one may plant the tree, one may not really benefit from it. So, the interest in the plantation remains lacklustre.
Also, the export of sandalwood is banned. While growers in other states have some flexibility of trade, those in Karnataka, Kerala and Tamil Nadu can sell only to the government, at ridiculously low prices compared to the market. Such restrictive trade practices, combined with sordid nexus of backward linkages at the grass-root level, comprising a network of dangerous smugglers, poorly paid forest officials, powerful politicians and villages adjoining sandalwood forests, have resulted in the extensive smuggling of the wood, both within and outside of India.
Also, the harvesting of sandalwood is not scientific. In the name of harvesting, an entire tree is removed at the very root for immediate profits, because the root area contains the highest concentration of sandalwood oil. The government needs to educate growers on the optimal timelines for harvesting the tree to maximize the profit over the lifetime of the tree — typically between 15 and 30 years — rather than look for immediate profits.
Not difficult
It’s not as if the sandalwood tree is difficult to grow. It grows easily enough, especially south of Vindhyas — and capable of growing in the north as well — with little maintenance. Its most important and expensive input, at least until such time the supply increases significantly, is the security of the trees.
In this backdrop, perhaps state governments could decontrol sandalwood in an accelerated but gradual format. Some measures that could help maybe:
Permit the local, and tribal communities inside and alongside forests to grow sandalwood trees systematically. Such communities will have every incentive — thanks to cultural and religious reasons — to prevent poaching of the trees much more than the forest officials, much as the Bishnoi community in Rajasthan has shown in protecting the blackbucks from poachers.
Allow free private commercial plantation and harvesting of the trees. If the best commercial interests lie in harvesting the trees optimally for maximal profits over the lifetime of the tree, that would be the most sustainable way to enhance the supply and to take back much of the control we have ceded to Australia in sandalwood trade.
Allow households and communities to grow and harvest sandalwood with some basic checks and balances — but not onerous ones.
Replace, at least partially, the roadside plantation of teak and eucalyptus alongside highways, by sandalwood plantation.
Allow sandalwood trees to be grown in every garden, park and green space freely, so that sandalwood trees would be to India what oil wells are for Arab countries — very valuable internationally, even if the prices in the domestic market dip somewhat.
A policy broadly along the above lines would bring the prices significantly down in a 10-15 year time frame, and remove much of the need for smuggling (though not in the short term), much as decontrolling gold did away with gold smuggling. In the shorter term, the plant growers will have every incentive to safeguard the trees privately.
(The writer is an academic and an author)