The Sad Tale of Sandalwood

The story of sandalwood is far more interesting and extends over a far longer period than I’d known, as I learnt when I read Missing in Action by Pranay Kotasthane.

 

Even 200+ years back, sandalwood was in demand. In China! Not surprisingly, the East India Company wanted to export it to China. But there was a problem – most of the sandalwood was grown in Tipu Sultan controlled Mysore state. Recognizing its commercial value, Tipu forbade his subjects from trading it with the British. He went a step further and declared it a “royal tree”, thereby monopolizing sandalwood trade.

 

This then was one of the factors in the Anglo-Mysore wars. Once the British won, they continued the sandalwood trade monopoly rule, with them in control.

“The conception of sandalwood as a source of government revenue strengthened.”

 

After Independence, the state government continued this practice and denied property rights to sandalwood growers. Even if the trees grew on private land, they belonged to the state government! Sandalwood tree growers had to report the tree count, and were responsible for any damage or theft, while the government officer decided the revenue share of sandalwood. Both in Karnataka and Tamil Nadu, a license was needed to store, sell and process sandalwood. No wonder then that nobody wanted to grow sandalwood – it was a huge headache.

 

Production thus fell, but the story doesn’t end there. The demand still existed, and so the transactions started to happen in the black market. Smuggling the trees from government-controlled forests became a lucrative opportunity. The government increased the forest guard count, but to no avail. The profit involved was so high that the guards could easily be bribed. This was the backdrop against which the notorious Veerappan rose.

 

In 2001, the Karnataka government recognized its policy mistake on the matter. But they still only took half the necessary measures. While they allowed private players to grow and own sandalwood, the only allowed buyer was the state itself. This meant the state set the price, not the market. In 2009, the Karnataka government again took more incremental (but not complete) steps to correct the situation by allowing sales to be made to semi-government bodies. Yet, it still means that those bodies buy at around ₹3,500 per kg and sell it at ₹16,500.

 

The takeaways from this sad tale? Denying property rights, and not letting the market set prices took away the shot to prosperity for so many poor farmers. It also led to the creation of a black market, a smuggling network, bribing of guards, and the likes of Veerappan. Quite often, it is the State that creates the conditions for crimes (prohibition world over is another well-known example)… this is a less acknowledged aspect of policy making, warns Kotasthane.