It's
actually a good thing when a perfectly logical argument meets with strong
opposition, because that usually gives you an opportunity to reinforce the
narrative and make it still more forceful without letting it look like an
overkill. And here's an excellent example of such a 'blessing in
disguise' : I won the match 6-0, 6-0, 6-0, as you can see!
____________________
Glossary & annotations
(In
same order as in text)
Tobacco,
tobacco! -- Please see preceding post ( Manifestation Of The British Tobacco Empire In Independent India ).
ITC
Ltd. -- Indian Tobacco Company.
ILTDC
-- Indian Leaf Tobacco Development Company.
Public Accounts Committee -- A panel in the lower house (Lok Sabha, meaning 'People's Assembly') of Indian Parliament. One of its main functions is to discuss important audit reports of the Comptroller and Auditor-General of India, with senior civil servants as 'witnsses' (who usually turn into defendants!). The Chairman of the panel is normally a prominent member of the Opposition. There are corresponding PACs at the States level.
BAT - British American Tobacco Company, London.
Maharashtra -- A major State on the West coast of India.
____________________
1
THE HINDU
11 May 1995
'Tobacco, tobacco!'
With reference to the article 'Tobacco,
tobacco!' published in these columns
on
April 13, Mr. P.B.K Murthy, Retired Deputy Chairman, ITC Ltd., writes :-
Mr.
M.V. Ramakrishnan's efforts in recalling certain intriguing stories relating to
tobacco exports in the early Seventies call for clearing of the smoke
screen. An adverse impression has been created through the article,
and it would appear government agencies, Indian officials, trade and industry
were less than honest and busily selling India cheap while other countries
fervently practiced nationalism. While this is not to hold a brief for my
previous employer or for their associates, I wish to bring a correct
perspective to the subject.
Perhaps
the author refers to me when he speaks of the Vice-Chairman of the Tobacco
Export Promotion Council, Madras. I held those positions of trust for a
number of years in the Sixties and Seventies. He has alleged among other
things that the Managing Director or some other senior official of ILTDC had a
strong bias for settling extremely low prices for its exports to allied firms
abroad. The following facts would help to set right the erroneous
impression created by Mr. Ramakrishnan.
Exports
of Indian Leaf Tobacco development Company (ILTDC) were mainly to countries
which did not bother about government minimum export prices. The ILTDC
was the largest single exporter to all the four largest manufacturers in the
U.K.and in Japan. It had no interest in government minimum prices, as our
export prices were well above them. The Tobacco Export Promotion Council
noticed that the other traders were also exporting to countries above the
government-fixed minimum export prices.
Government
statistics would prove that at that time the price for any grade of
tobacco obtained by ILTDC was the highest. One of the simple reasons for
this was, whilst others generally had to export through intermediaries which
took a five per cent commission, ILTDC made direct exports mostly without
intermediaries. Even if some exports had to be made in the name of
an intermediary which supervised them, such intermediary was paid for its
services by the importer abroad. In the case of exports to Japan,
the Japanese government monopoly only imported through its agents,
and the commission paid by ILTDC to its agent was the lowest in the
industry. The ILTDC was aware that the company's interests would be
served best when the trade as a whole prospered.
The
Tobacco Export Promotion Council did take care in recommending prices.
The concern for the Indian farmer and trade preceded any other parameter in
recommending or fixing prices. The recommendation was arrived at by
consensus of members, who included other members of the trade. The
recommendation forwarded to the Commerce Ministry by the Tobacco Export
Promotion Council was one of the inputs for the Ministry to decide the minimum
export prices. The Ministry was also aware of the export prices from
other producing countries to the U.K. It would be uncharitable to believe
that the Commerce Ministry did not apply its mind before finalizing the minimum
export price. Further, the Ministry indeed had men of experience and
integrity, and it would be absurd to paint all of them with the brush of
dishonesty.
All
exports of tobacco had to be certified by the Agmark authority of
the Ministry of Agriculture. This certificate ensures that the grade
declared by the exporter is correct and consistent.
The
importing manufacturers appreciated the services rendered by ILTDC to the whole
trade through its R&D and extension services. The importers abroad
respected ILTDC for its services to farmers and the trade while retaining its
integrity and reliability.
ILTDC's
assets in India were purchased by ITC Ltd. at a reasonable price.
This brought substantial export business to ITC, which helped it in no small
measure.
The
current controversy between BAT and ITC has been linked by Mr. Ramakrishnan to
the need to restore ILTDC/ITC as a passive supplier of tobacco to the
U.K. This must be an original interpretation unknown to both the feuding
parties.
____________________
2
THE HINDU
18 May 1995
India
of C-A-G
Oh tobacco !
I
am grateful to Mr. P.B.K Murthy, formerly Deputy Chairman, ITC Ltd., for
his comments (May 11) on my article on the tobacco export
scene. I am sure he is talking with conviction when he declares that my
view on tobacco export trends 'calls for clearing of the smoke screen'.
But conviction carries the hazard that one may quite sincerely believe what is
not true!
It
is my belief -- as a former investigative auditor of the Government's affairs
-- that the thick smoke screen which has always surrounded India's tobacco
exports has been the result of the serious distortions caused by the traders
during the past several decades, which I had explained in the disputed
article. My recollections were not made from memory alone, but were also
based
on authentic information contained in certain notes I had jotted down 20
years ago in the course of my audit scrutiny of the Government's concerns on
the export front.
Mr.
Murthy says that according to me, "the Managing Director or some other
senior official of ILTDC (Indian Leaf Tobacco Development Company) had a strong
bias for its exports to allied firms abroad." That is not a correct
quotation! What I had said was that the firm
ILTDC had such a strong bias, and its senior officials used to play a
leading role in the business of the Tobacco Export Promotion Council, which had
the responsibility to recommend proper minimum export prices. Individual
officials of the company might well have had a different attitude ; but
being placed in a position where they could influence the environment in favor
of the clear corporate policy of the institution which employed them, they
could hardly have avoided doing so.
Policy and practice
The
same thing might have been true of the Commerce Ministry officials also.
Mr. Murthy says : "The Ministry indeed had men of experience and
integrity, and it would be absurd to paint all of them with the brush of
dishonesty." But I never said the officials were all
dishonest! What I did assert was that, acting on the recommendations of
the Export Promotion Council, the Commerce Ministry used to fix extremely low
minimum export prices (MEPs) for FCV tobacco. In doing so, many of
the officials might only have been conforming to the overall policy laid
down by their political masters ; but that did not absolve the Ministry
of blame for encouraging a regime of deception!
In
the late Seventies, Dr. P.C. Alexander, who is now Governor of Maharashtra, was
working in the Commerce Ministry as Additional Secretary for some time and then
as Secretary. He had attended some sessions of the Public Accounts
Committee of Parliament, as a witness during its discussions on certain strong
audit observations about the arbitrary manner in which cash subsidies were
being sanctioned by the Government for promoting exports. Can anyone
question or even doubt the honesty and integrity of Dr. Alexander? And
yet, he did find himself those days in a situation where he was forced to
defend some extremely wrong decisions which had been taken by the Government.
Since those
issues had been raised as a result of my special audit investigations, I used
to be present in the PAC meetings as a shadow of the Comptroller and
Auditor-General of India, who was always there to assist the Committee and
guide its deliberations. Dr. Alexander is a very nice person ; although
he was miles above me in seniority and status and I was a constant nuisance in
the Commerce Ministry, he never showed any resentment towards me.
On
one occasion, during a recess in the PAC's tough proceedings, he told me in a
frank and friendly tone : "My dear fellow, you must have some
sympathy for your fellow-officers in the Government! Tell me, what would
you do if you came on deputation to the Commerce Ministry as a Joint
Secretary? Would you be able to stop all this?" The only
answer I could give him was that I hoped such a situation would never arise
-- and luckily for me, it never did! I leave the moral of this
story to the reader's imagination.
Mr.
Murthy says : "An adverse impression has been created through the
article, and it would appear government agencies, Indian officials, trade
and industry were less than honest and busily selling India cheap . .
." -- Yes, Sir, the article was certainly intended to convey
the very adverse impression of tobacco trade practices which had crystallized
in the course of my audit research, and I had plainly said so! When Audit
justifiably finds fault with the Executive's actions or inactions, there can
only be one or both of two reasons : inefficiency and/or malpractices.
And when business enterprises gain enormously from Government error, it does
usually indicate a nexus between them and the Government or its
officials. Is this not quite obvious?
Irrelevant arguments
Now,
let us take up the specific question of minimum export prices of tobacco in the
Seventies. Mr.Murthy says that "ILTDC's exports were mainly to
countries which did not bother about government minimum export
prices." Indeed, why should those countries have bothered?
It was for India to worry about what was going
on!
Mr.Murthy
adds : "ILTDC had no interest in government MEPs, as our export
prices were well above them." Of course, they would have been
so! I never said that ILTDC used to export FCV tobacco at prices lower than
the minimum export prices. What I did say was that the MEPs themselves
used to be fixed at ridiculously low levels, so as to make the actual
realizations look reasonable. There was a striking parallel to this in
the case of steel tubes and pipes exports -- but let us talk about that
some other time!
Mr.
Murthy says : "Government statistics would prove that at that time
the price of any grade of tobacco obtained by ILTDC was the highest"
(meaning, of course, highest among prices secured by Indian exporters).
This might well have been so! ILTDC was the leader and trend-setter on
the export front ; and if it was bent on supplying large quantities of
fine FCV tobacco to associated foreign firms at abnormally low prices. Who
would pay more for similar grades of tobacco exported by other Indian
companies? Would the statistics prove that because ILTDC got better
prices than other Indian companies, it did not accept unreasonably low
prices in relation to what other exporting countries were getting for tobacco
of the same quality?
Mr.
Murthy goes on : "All exports of tobacco have to be verified by the
Agmark authority of the Ministry of Agriculture. This certificate
ensures that the grade declared by the exporter is correct and
consistent." But I had not said a word about any quality
deficiencies! On the contrary, I had highlighted the fact that India's
exported FCV was among the finest in the world, quoting the National Council of
Agriculture. And that is precisely why the actual export prices must be
considered to be far too low!
However,
the fact remains that in 1980 British Customs officials did intercept Indian
FCV consignments which were found to be of grades higher than those shown in
the invoices. It is not for me to say whether the Agmark certificates --
if they had been issued in those cases -- were right or wrong. One must ask
British Customs, I suppose!
Accolades and award
Mr.Murthy
says : "The importing manufacturers appreciated the services
rendered by ILTDC to the whole trade through its R&D and extension
services. The importers abroad respected ILTDC for its services to the
farmer and the trade, while retaining its integrity and reliability. Of
course, why wouldn't the importers abroad be happy, when ILTDC was
supplying excellent FCV tobacco to them at some of the lowest prices in the
world? :
It
was in ILTDC's own interests (and those of the Imperial Tobacco Company in
Britain and its branches and associates elsewhere in the world) that good
R&D work was undertaken by the firm. But how does that alter the
reality of extremely low prices being secured for exports, and
correspondingly being paid for procurement of tobacco leaf in
India?
As for ILTDC's services to
Indian tobacco-growers, why look for accolades from foreigners? Even the
Federation of Indian Chambers of Commerce and Industry (FICCI) had given it an
award for that! And what were those services?
Extending credit
(mainly in the form of fertilizers, seeds, coal, etc.), and in due course
mopping up their produce at the cheapest imaginable price on behalf of the
highly pleased importers abroad! Naturally, the importers must have found ILTDC
absolutely reliable!
East India Company
Mr
Murthy concludes : "The current controversy between BAT and ITC has
been linked (by the author) to the need to restore ILTDC//ITC as a passive
supplier of tobacco to the U.K. This must be an original interpretation
unknown to both the feuding parties." Well, it would have
helped if Mr. Murthy had explained what precisely then is BAT's motive in
the ongoing confrontation.
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