#19 Daastaan-e-Sandalwood
Sandalwood, Stakeholder Mapping, Kerala's Public Health Management, and more
This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
PolicyWTF: Daastaan-e-Sandalwood
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
If one were to write a book on stupid government regulations in India, sandalwood regulations would deserve nothing less than a full chapter.
First, the context. The production of sandalwood in India has declined considerably. In 1965-70, annual production stood at 4000 tonnes. By 1999-2000, it had decreased by half. And by 2019, it had become just 200 tonnes. Other countries supplied a total of 400 tonnes, as against the total global demand of 6000 tonnes a year.
Meanwhile, Australia, which had its own native sandalwood, shifted to the Indian variant in 1998, introduced genetically-engineered high yield varieties and beat India in its own game. So much so that India now imports Australian sandalwood for the sandalwood oil industry.
What was the reason, you ask? In this case, the causal link between government regulations and fall in production is direct. The story goes as follows, as told in this eye-opening piece by Dr M Govinda Rao:
Tipu Sultan declared sandal a royal tree and monopolised the sandalwood trade in 1792.
Successive governments followed this practice, even after independence. Even when the tree was located on private land, it belonged to the State Government and the owner of the land was required to make a declaration on the number of trees on his land.
The forest officer could enter any private land and cut the trees and the range forest officer would give 75 per cent of the value as decided by him.
In Karnataka and Tamil Nadu, in order to store, sell and process sandalwood, it was necessary to get a licence. Possession of sandalwood in excess of 20 kg was an offence.
These perverse incentives led to a fall in production. To compensate for the shortage, a thriving black market emerged.
The government could not protect even the plants in its forests. The mismatch between demand and supply made smuggling lucrative and paved the way for the likes of Veerappan!
The government then created a large army of forest guards and personnel to "protect" the forests. The collusion of the forest staff with smugglers further caused the sandalwood to vanish.
Fascinating, no? Now, this is the story since 2001.
The Karnataka government realised their mistake and allowed private players to grow sandalwood in 2001. Tamil Nadu followed suit in 2002. But but…
Farmers could only sell the sandalwood back to the government. Realising that this was still a major stumbling block, the Karnataka government further liberalised sandalwood policy. But but…
Starting 2009, the growers could sell their wood directly to semi-government corporations such as Karnataka State Handicrafts Development Corporation (KSHDC) and Karnataka Soaps and Detergents Limited (KSDL) (You know this was coming, didn’t you?!). Apparently, KSDL offers a non-negotiable sum of Rs 3,500 per kg of sandalwood. The company then turns around and sells the product for nearly Rs 16,000.
And then, the government also announced a 75 per cent subsidy on sandalwood cultivation.
And so, there are still very few takers. Farmers have been demanding that they should be allowed to sell to international buyers but how can that be allowed, haww? How will the government produce sandal soap then?
Eventually, a nexus between a few private players and government will increase production but sandalwood will remain far from a competitive market. India will lose another opportunity, one worth 5400 tonnes of the royal tree.
PolicyWTF, indeed!
I ended up reading several articles on this. If you too want to go down the rabbit hole, here:
A Framework a Week: Stakeholder Management in public Policy
Tools for thinking public policy
Stakeholder management is a key tool for effecting policy change. Bruce Levitan of Manchester Metropolitan University has a brilliant framework which applies to public policy quite well. A four-step path is proposed:
Identify the stakeholders: listing the stakeholders involved and their attributes such as their stake in the project, what is needed from them etc. An illustrative chart here:
Create a Stakeholder Map:
Map stakeholders on a Stakeholders Matrix according to the level of impact of the change on them (interest) and the importance these stakeholders to the success of the change project (Power). Use the grid below and decide which part of the grid each stakeholder fits into, then follow the relevant management strategy for each one.
Identify Stakeholder Allegiance: identify blockers, champions, and the opponents etc.
4. Create a stakeholder management strategy, which means
The strategy basically spells out where you want each stakeholder to “go” in terms of the project, and how you will manage them in order to get them there.
(Source: Bruce Levitan, Stakeholder analysis toolkit)
This is one comprehensive way of going about mapping stakeholders.
Matsyanyaaya: Do Imports Reduce GDP?
Big fish eating small fish = Foreign Policy in action
Reducing trade deficit has been a focal point of Trump administration’s foreign policy. Import tariffs imposed by the US have led to a reduction in imports. The resulting higher prices have benefited US producers and hurt US consumers. As it was anticipated, the loss to consumers exceeds the gains to producers. A couple of NBER Working papers find that the real incomes declined at about $7.8 billion per year because of the tariffs imposed in 2018 alone. So, this is a perfect illustration for how deploying direct economic power to hurt adversaries also hurts one’s own economy directly.
On a related note, this conceptual clarification on the relationship between GDP and imports is delightful. As many of you would recall from high school economics, GDP is expressed using the equation:
GDP = C + I + G + (X-M)This intuitively makes us feel that higher the imports (M), lesser the GDP. Conceptually though, GDP only measures domestic production so imports (goods produced outside the economy) should not matter at all. So what’s it doing in the domestic production equation then?
As it turns out, the equation is such only for accounting reasons. Here’s the explanation:
Some of this spending (which is counted as C, I, and G) is spent on imported goods. As such, the value of imports must be subtracted to ensure that only spending on domestic goods is measured in GDP. For example, $30,000 spent on an imported car is counted as a personal consumption expenditure (C), but then the $30,000 is subtracted as an import (M) to ensure that only the value of domestic production is counted. As such, the imports variable (M) functions as an accounting variable rather than an expenditure variable. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP.
So, more imports do not impact GDP. It’s only an accounting artefact because of which imports feature in the GDP equation.
India Policy Watch: Kerala and Public Health
Insights on burning policy issues in India
Kerala stood out in its response during the Nipah virus outbreak. Now it seems to be handling testing during the coronavirus outbreak quite well too. What explains Kerala’s better performance on public health?
I can at best hazard a guess. In our study on public health expenditure in India, we had observed that Kerala was an outlier when it came to fiscal decentralisation in health. Specifically, this is what my colleague Pavan Srinath found out:
The State of Kerala is far more fiscally decentralised, having fostered bottom-up participatory planning within the State for several years now. Within the health sector, the Kerala government continues to spend via the usual budget heads like 2210 and 2211, including funds for Public Health Centres (PHCs) — especially doctors’ salaries, etc.
Kerala also does not provide much by way of specific purpose transfers to panchayats and Municipal Councils in health. PHCs are typically controlled by Gram Panchayats and CHCs by Block Panchayats. Instead, Kerala gives large amounts of general-purpose transfers to local bodies, some of which can be used for health and other expenditures:
Development fund (against a decentralised ‘plan’ which includes local schemes developed in the gram panchayat/block or district panchayat. If health is featured in the local plan, then additional resources can be devoted to health from the local body, including for purchase of equipment at a PHC, new building construction and more.
Maintenance funds (non-road): includes funds for maintenance and upkeep of PHCs at the Gram Panchayat level.
Some amount of the expenditures on Anganwadi and ASHA workers and honorariums for other nutrition-related activities are also borne by LSGs (Local Self Governments).
LSGs also receive devolved funding from NRHM for certain local activities.
Kerala also has an “Information Knowledge Mission” dedicated to running a system of accounts and payments for all local bodies in the State. This body maintains a database that can disaggregate local body expenditures in health, water & sanitation and other sectors. LSGs’ expenditure on health in Kerala is thus unique in adding significantly to the State budget on health and related expenditures.
I suspect, and this is just a hypothesis, that this fiscal decentralisation allows the governments to respond quickly in times of crises.
HomeWork
Reading and listening recommendations on public policy matters
[Digital Project] Macropolo has some beautiful assessments of the supply chains of OLED displays, Li-Ion batteries, and AI chips.
[Paper] Cooperation, trust, and antagonism: How public goods are promoted lays out a framework for explaining the variability with which citizens support endeavours that are designed to help a great number of people.
[Paper] Ed Glaeser has a new paper out on why in recent years, urbanisation has led to much discontentment.
[Podcast] Women in Labour is a fun, new podcast hosted by Aditi Mittal and Christina MacGillivray on India’s falling women labour force participation rate. More such podcasts, please!
That’s all for the week. If you like this newsletter, please do read and share.
Hi. As always, enjoyed reading it!
A question on the imports effect on GDP - conceptually, wouldn't higher imports lead to a drop in consumption of domestically produced goods? As consumers are going to buy a fixed amount of goods at the end of the day.