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?
PolicyWTFs: Pesticide Ban Update and Why Ganesha isn’t a Vighneshwara in Indian Policy Making
This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?
— Raghu Sanjaylal Jaitley
On May 31, we had written about the ban of 27 generic and widely used pesticides by the ministry of agriculture. Remarkably, the list included Malathion, a ‘blue triangle’ pesticide, that’s used to kill locusts at a time when we were in middle of a locust invasion. More remarkably, the union government was procuring 53,000 litres of Malathion at the same time when it was banning it.
It was a PolicyWTF for the ages.
Things haven’t been quiet since. Let’s pick up the story from where we left. Shortly after, on June 2, the chemicals ministry wrote to agricultural ministry calling the ban sudden and highlighting its negative impact on exports. On June 10, the agriculture ministry lifted the ban on the exports of these pesticides. It also extended the date to submit comments on the notification from 45 days to three months. Now, the Association of Sustainable and Holistic Agriculture (ASHA), has accused the chemicals and fertilizers ministry of selling out to the industry lobby.
There’s so much to learn here about public policy in India. First, the ban on the pesticides in May 2020 was based on an expert committee report of Dec 2015. It takes four and a half years for recommendations to turn into a policy. A fine example of speed in policymaking. After all these years when the guidelines were put out, another ministry of government objects to it immediately. Was the ban decided by agriculture ministry without consulting the most obvious ministry (chemicals and fertilizers) in the government? In four and half years, did no one in the agriculture ministry think – since we are banning pesticides, maybe we should ask chemicals ministry what they think about it? Also, if they missed consulting the most obvious ministry, what are the odds other stakeholders outside of the government were sought for their views. Is there such a thing as stakeholder mapping among the policymaking tools used by the government?
Finally, we have also got a well-meaning advocacy group into the mix. I’m afraid I see the path to Supreme Court and another four and half years before we see the end of this.
Ghar wapasi for Ganesha
Of course, we will talk about Ganesha idols. FM Nirmala Sitharaman on Thursday spoke for crores of Indians:
Ganesha idols made of clay have been traditionally bought from the local potters during Ganesh Chaturthi festival every year, she said.
“But today, why even Ganesha idols are imported from China..why such a situation…can’t we make a Ganesha idol from clay, is it the situation?” she asked.
It is indeed ‘the situation’. And whenever we are confronted with ‘the situation’, we seek shelter at the feet of our parampujya teacher, Prof Arthananda Ilyich Smith-Hayek (AISH). For those who came in late, Prof AISH is a shuddh desi economist and a veritable sangam of three key economic streams – Neoclassical, Marxist and Austrian. Over to him.
Prof AISH: There are so many things to say about ‘the situation’ as described by our FM. Let’s look at them:
- China didn’t start making Ganesha idols because they heard an aakashvani about Indians wanting Ganesha with Chinese characteristics. It is important to remember here – countries don’t trade between themselves; people do. Some years ago, a trader in India asked if China can make so many things cheap, can’t they make Ganeshas too? This trader knew his market. Clay Ganesha idols costing Rs. 1000 each would draw 200 customers who could afford them. That’s a market size of Rs. 2 lakhs. But if Ganesha idols were priced at Rs. 200, he reasoned 2000 customers would buy them. That would double his market to Rs. 4 lakhs. Lord Ganesha will forgive me for saying this but demand for his idols is elastic in this great land of ours. So, the trader placed his order with his Chinese partner who started making Ganesha idols with Indian characteristics. If there are Indian makers of Ganesha idols today who can match China’s prices, this trader will go to them. Else, if he’s forced to sell only clay idols that are made in India at Rs. 1000, the market will shrink back to Rs. 2 lakhs because the demand for Ganesha is elastic. That will be bad for the trader and also customers who can’t afford a clay Ganesha costing Rs. 1000
- Now, you will ask the obvious question. If we support our makers of clay Ganesha, won’t they become competitive over time. The answer is not quite. First, clay Ganesha making is a labour-intensive process unlike the mass manufacturing of moulded PoP Ganesha. This means a single worker in China can produce a thousand Ganeshas every hour while a worker in India will struggle to make ten. Second, our laws don’t encourage scale. We love small-scale industries in the mistaken belief they are good for small manufacturers. They are not. Ganesha, diyas, agarbattis (which the FM also mentioned) are all categorised in the laghu udyog category. If we have to compete with China, we have to reform every single factor of production (land, labour and capital) and simplify our laws. The industry needs Vighneshwara (another name of Ganesha; the remover of obstacles) to help solve the Ganesha problem. If we did that, we would have comparative advantage on many of these products. So, the answer to the problem of Ganesha with Chinese characteristics is with the FM, not with the traders. The traders should be asking questions of the FM about Ganesha.
- There is this common belief that we should import only things we lack the know-how to make. The rest we should make ourselves. That explains the FM’s words: “why such a situation…can’t we make a Ganesha idol from clay.” This is so far away from economic reasoning that I don’t know where to start. People trade based on their comparative advantages. The net outcome of trade is positive for both parties. I don’t employ someone to help me with household chores because I’m perplexed by the science behind mopping or dusting. I trade with them because I can use my time more productively elsewhere.
- Lastly, many years ago (before I turned into a professor), I worked for an Indian company that ran a helpdesk in Bangalore. My client was a global tech major based in the Bay area. We used to help their employees and customers with minor things like password reset. To be sure, this great tech company and its employees knew how to reset passwords. They had outsourced it to us because they had better things to do. Over a period of seven years, we moved from password reset to order management and finally managing sales effectiveness for them. Over time, we didn’t want to do password reset anymore because its revenue realisation was low. So, they moved it to another vendor in Philippines. Our revenues from the client went up by 9X and the market cap of the client increased by 3X in those years. Among the many lessons from this story, I would like to highlight only one. China is no longer interested in making low-value goods at scale. They are moving up the manufacturing value chain that improves factor productivity and gives better realisation. Like my company did. We should be competing with them there than trying to make Ganeshas and agarbattis at sub-optimal scale.
Read the full edition here.
Disclaimer: Views expressed on Anticipating the Unintended are those of the authors’ and do not represent Takshashila Institution’s recommendations.