The Hindu : Politics and economics of sandalwood

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Friday, Apr 26, 2002

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Politics and economics of sandalwood

By M. Govinda Rao

Two hundred years of public monopoly and persecution and harassment of those on whose land the plant grew were enough to make the yoyal wood vanish.

ALTHOUGH IT is grown in small quantities in the Asia-Pacific region, India has a virtual monopoly over sandalwood production. Over 90 per cent of India's sandalwood is grown in Karnataka and Tamil Nadu. Interestingly, the present Government policy pertaining to the management of sandalwood goes back to Tipu Sultan, erstwhile ruler of Mysore. Like all valuables, Tipu Sultan declared sandal a royal tree and monopolised the sandalwood trade in 1792. Successive Governments in Mysore and later Karnataka simply followed the practice. Other States such as Andhra Pradesh and Tamil Nadu followed suit. While the States exploited the commercial potential, not much was done to expand the area under cultivation or contain root diseases. Of course, there were some attempts at undertaking research, notably by the Indian Institute of Science. The policy on sandalwood production and trade enunciated by Tipu Sultan continues with certain modifications even today. According to the prevailing rules in the southern States, except Kerala, sandalwood continues to be a royal tree and trade in the wood is the monopoly of the state. Even when the tree is located on private land, it belongs to the State Government and the owner of the land is required to make a declaration on the number of trees on his land. The forest officer can enter any private land and cut the trees and the range forest officer will give 75 per cent of the value as decided by him as bonus. In these States, in order to store, sell and process sandalwood, it is necessary to get a licence. Possession of sandalwood in excess of 20 kg is an offence. In Kerala, however, there is no restriction on storage and transportation. This has given rise to widespread smuggling and illegal trade especially between Karnataka and Kerala. Places such as Bandipur and the Karnataka-Kerala-Tamil Nadu border have become havens for illegal trade in sandalwood.

Despite favourable conditions for its growth and natural regeneration in many forests of Karnataka and Tamil Nadu, both production and export of sandalwood and its products have shown a steep decline. Sandalwood production in the country has fallen from about 4,000 tonnes per annum in the 1960s to less than 1,000 tonnes during the 1990s. Sandalwood oil has virtually disappeared from the international market and its place has been taken over by synthetics. The natural regeneration of sandalwood in the evergreen forests of the Western Ghats has virtually stopped and sandalwood koties (depots) established by the Government when there was considerable growth of sandalwood had to be closed down. The distillation unit set up in Shimoga was closed down for want of adequate supply of sandalwood and the Mysore unit gets only a fraction of its requirements. At the same time, a thriving black market has emerged.

The reasons for the dwindling supply and disappearance of the sandalwood are not difficult to guess. The sandalwood policy is a clear example of perverse incentives destroying economic potential. The country's policy-makers seem to think that people do not respond to incentives. Two hundred years of public monopoly and persecution and harassment of those on whose land the plant grew were enough to make the royal wood vanish. The Government could not protect even the plants in its forests.The greatest contribution of the policy has been the creation of the "Veerappan" clan. The system has not only denied incentives to private initiative for growing sandalwood but also created potential for harassment. If mature plants existed on private land, the owners of the land had to live in perpetual fear of harassment by forest officials on the one hand and smugglers on the other.

Here is a case of an important resource in which the country's virtual monopoly position has been squandered away. This is a typical case of killing the goose that laid the golden eggs. The right set of policies and incentives to nurture private initiative in growing sandalwood and creation of a healthy market for the wood and its products could have established India as a leading producer and exporter. Allowing private landholders to produce and sell sandalwood could have provided the incentive. Helping create an organised market would have augmented supply to enhance employment opportunities for the artisans, create a viable employment intensive resource based industry and enhance exports. Much more effort could have gone into research to enable its growth and contain diseases.

While on the one hand revenue from the sale of sandalwood and its products has been dwindling, the large army of forest guards and personnel to "protect" the forests has been adding significant costs to the exchequer. This semi-parasite crop (it gets its nutrients by sucking the roots of other plants) has created an army of parasites! Indeed, inept enforcement of the law and regulations is more dangerous than lack of regulation itself. Collusion of the forest staff with smugglers has only caused the sandalwood to vanish. The entire process has added another rent-seeking clan to society.

The most important contribution of the sandalwood policy is the creation of the clan of Veerappans. Of course, this is not to say that in the absence of a monopoly policy on sandalwood, Veerappan would have been an angel. He would have possibly taken to some other form of unlawful activity, but the sandalwood policy provided an easy vocation for him and his ilk. Open borders and easy access to sandalwood provided a liberal invitation to the smugglers. In fact, it is the unimplementable regulations and the collusion of forest guards that created this band of smugglers who could then easily graduate to poaching elephants for ivory and other forms of criminal activity.

It has been a long journey of over two centuries from Tipu Sultan who made sandalwood a Government monopoly to Veerappan who enjoyed immense benefits from this regulation. Of course, there must have been a number of such criminals before Veerappan, but no policy-maker thought such regulations would be counter-productive and only help create a society with total disrespect for the law and its enforcers. After all was it not the great man Lord Keynes who said, "The difficulty lies, not in the new ideas, but in escaping from the old ones which ramify... into every corner of our minds?"

(The writer is Director, Institute for Social and Economic Change, Bangalore.)

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