The curious case of election years and tendu auctions in Chhattisgarh

A decline of Rs 4.6 billion in revenue from tendu-leaf auctions this year triggers allegations of cartelisation in the lucrative trade

It’s a unique cycle, and it occurs every five years. The sale price of tendu leaves — a lucrative forest produce used for making bidis — peaks in Chhattisgarh after every four years of Assembly elections. Then, in the election year, it falls dramatically. This brings down the income of more than one million tribal families and other forest dwellers in the state, who otherwise might be hoping to earn benefits from the incumbent governments’ populist measures in election years.

The tendu leaf trade fuels the Rs 70-billion bidi industry, which employs about eight million people in India and has several politicians running the business. Chhattisgarh produces 20 per cent of the country’s tendu leaf stock. Eighty per cent of the profit from the sale of these leaves is paid to the tribal people and forest dwellers who collect them.

In 2017, the state earned Rs 13.6 billion from advance auction of tendu leaves. But this year, the auctions have fetched just Rs 9 billion, documents show. The Rs 4.6 billion fall is because few traders participated in the auction, making much lower bids this year than last year. This is in contrast to the trend in the past five years. The number of bidders and sale price of tendu leaves have been consistently increasing in auctions since 2013.

Chhattisgarh is going to the polls next month, with incumbent Bhartiya Janata Party government seeking a fourth consecutive term.

Tendu leaf trade had seen similar trends in two previous election years as well. Between 2004 and 2007, the revenue from auctions increased steadily from 1.5 billion to 3.3 billion but came down to Rs 2 billion in 2008. It again peaked in 2012 to Rs 6.5 billion but fell to almost half at Rs 3.6 billion in 2013. The average bidding price per standard bag of 50,000 leaves by traders fell significantly in these years (see chart).

The allegation of cartelisation

In March this year, a petition was filed in the Bilaspur High Court alleging cartelisation by traders and corruption by state government agencies in this year’s tendu leaf auctions. Documents show, while a total of 302 traders bid for 951 forest blocks in the first round of auctions last year, the number this year came down to 138, or less than half, for the same number of blocks. The average bidding price for one standard bag of leaves last year was Rs 7,952, but this year it came down to Rs 5,716.

The court, however, found nothing wrong in the auction process. The state government has maintained throughout that the fall in the sale price of tendu leaves every fifth year is due to “market and climate conditions” in the state.

According to the Forest Rights Act of 2006, non-timber forest produce — such as tendu leaves — belongs to tribals and other forest dwellers who have traditional rights over such resources. The governments can merely act as agents in their trade, but profit has to be given back to forest dwellers. The government’s failure to earn good revenue from tendu leaf auctions, therefore, directly brings down forest dwellers’ income.

About 1.3 million forest-dwelling families in Chhattisgarh — most of whom live below poverty line — are involved in tendu leaf collection from forests. The wages and the profit from the trade makes the largest seasonal income — during the non-cropping season — and a significant part of their annual income.

Government accepts low bids

Chhattisgarh is the second-largest contributor to the tendu leaf trade — next only to Madhya Pradesh — and produces 20 per cent of the country’s leaf stock. Its tendu leaf quality is considered to be the best in the country and fetches the highest price in the market.

The leaves are sold through advance auctions before their collection season in April-June, by the state government-run federation. The auctions are planned in multiple rounds so that all the forest blocks are auctioned. Each year, after the first round of bids in the auctions, the government decides a minimum cut-off price, below which it would not accept bids. The cut-off price is calculated on the basis of past five years’ average of sales price, after adding an increment to it “on the basis of the market conditions of that year”.

For the 2016 auctions, the government added a 40 per cent increment over and above the past five years’ average sales price to reach the cut-off price. In 2017, it added 80 per cent increment. In both years, it managed to sell tendu above this cut-off price. This year, however, the state decided to add only up to 10 per cent increment to the past five years’ average sale price to reach the cut-off price.

While the law requires an inter-departmental committee of the state with top officials from the forest, finance, commerce and industry, and tribal development departments to approve the cut-off and bidding prices, documents show the cut-off price for 2018 were approved at a committee meeting in which only the forest department representatives participated.

The petition in the high court alleged the state government deliberately kept the cut-off price low so that even the bids that were significantly lower than last year’s sales price could be accepted. It argued that the government could have rejected the low bids in the first round and invited fresh bids in the next rounds.

The state government, however, countered that there was a glut in the market after the peak sale year of 2017. It said the purchase capacity of traders was low and they were struggling to pay even previous year’s dues which resulted in low bids. It said it did not cancel the low bids as there was no guarantee that the bids would improve in subsequent rounds. It feared if the lots were not sold in time the state would suffer further loss.

To show that the market prices of leaves were low across the country, the government also argued that all the other tendu-leaf producing states got even lower sale price than Chhattisgarh’s. The documents reviewed by Business Standard, however, show that at the time of accepting the first round of bids in Chhattisgarh, no other states’ auction results were out except a small portion for Maharashtra. The auction prices in other states did come down after Chhattisgarh accepted low bids.

In Madhya Pradesh, the leaves were sold at Rs 5,732 per standard bag in 2017 but the rates came down to Rs 4,847 per bag in 2018. In Maharashtra, the rates have come down from Rs 4,606 per bag to Rs 1,839, and in Andhra Pradesh they are down from Rs 4,871 to Rs 3,858. In fact, in Madhya Pradesh, the rates of tendu have followed the same trend as in Chhattisgarh. They have always fallen in the past three election years but consistently increased otherwise. The BJP-ruled state is also going to the polls later this year.

“Chhattisgarh has the best quality of leaves. The sale of its leaves sets the market trend in rest of the country. It was obvious that after Chhattisgarh sold its leaves at very low rates, the prices in other states would fall even further,” said Sudiep Shrivastava, the lawyer who represented the petitioner in the high court case. The court had, however, decided in favour of the state government.

Mudit Kumar Singh, managing director of the Chhattisgarh minor forest produce federation, which conducted the auctions, denied any cartelisation by traders or financial irregularity in tenders. “The auction prices have come down due to market conditions. It could be a coincidence that this happens in election years. I can bet that ours is the most transparent auction system. Nobody can manipulate it,” he said.

Mukesh Kumar Sinha, executive director of Madhya Pradesh Voluntary Health Association, who has studied supply chain of the bidi industry in India, however, says the argument that market goes down every fifth year for tendu leaves is not correct. “The production of leaves in a particular lot of forest goes up and down every alternate year but the selection of lots in a year is done in such a way that the overall production of leaves remains almost constant. The production of bidis is reducing, although not very consistently. The data for bidi and tendu is also hard to come by, so it is difficult to understand the trends. But the forestry department and tribal development cooperatives suggest that the demand for leaves is declining. The fall of revenue from tendu leaves in a particular year in a state has more political reasons than financial."