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.
11 May 1995
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.
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?
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.