Losing the Competitive Edge
Historically people/countries became rich if they possessed more natural resources and used superior technology and skills. Having gotten rich first allowed them to save more than those in poorer lands. With more savings more could be invested in plant and equipment. More capital led to higher productivity and hence to higher wages. This led to higher disposable incomes and an easy way to stay rich - a virtuous circle.
But then new technologies and new institutions combined to substantially alter the traditional sources of competitive edge; natural resources essentially dropped out of the competitive equation. With the exception of a few very lightly populated countries that possess massive amounts of oil, natural resources essentially ceased to be the major source of competitive edge. In fact, lack of natural sources is become an advantage - Japan has the best steel industry, though it does not have the iron or coal. It buys it where ever quality and price are the best. Natural resources are no longer in the competitive equation. Having them is not indicative of being rich.
While discussing forests of Jammu & Kashmir in the evolving context (the way in which this important natural resource has and is being used for the prosperity of the state) and in the backdrop of the aim of Government to achieve optimally productive forests, capable of providing timber and non timber products apart from the ecological services, without unnatural change in the composition of the natural forest ranges, it is important to understand that growth is not the enemy of environmentalism. It is in fact only with the growth and high standard of living that people become interested in the environment.
In the jargon of economics, environmental goods like clean air and pure water are luxuries. Our demands for them rise faster than our incomes. At very low levels of income the central worry is starvation. No one cares about the environment and no one can afford to invest to improving it. At higher levels of income with survival worries behind us, a better environment becomes important to our future standard of living. Only the poor denude forests to provide wood for cooking fires. With higher incomes we can afford more environmentally friendly forms of heating. What wealthy people can buy privately-a very good environment---middle class people come to demand politically (collectively) as their incomes rise?
With a total forest area of 20230 sq kms or 20.23 lakh hectares accounts for 19.95% of the total geographical area of 101387 sq kms of J&K state on this side of LOC. Major forest crop being coniferous, the growing stock of about 4696.23 million cfts (Deodar, kail, fir and chir as the predominant timber species) spread over an area of about 18.35 thousand sq. kms constitutes about 50% of total forest area. Non coniferous timber species (sheesham, walnut, Sal, rubiania, poplar, willow, mulberry, chinar etc) grown in an area of about 1.89 thousand kms work out to 9.32% of the total forest area.
The timber in the state is consumed for making of joineries and tresses for houses and buildings, furniture and fixtures, boats and house boats, bridges, hand tools, packing cases (shooks), veneer for plywood and the like. With the demand potential (in the domestic market) of 80 lakh cfts of timber and timber products a year, the coniferous timber extracted by the state holds a (current) market share of about 22% followed by the imported timber which holds a market share of about 20%. The indigenously grown non-coniferous timber species like poplars, rubina, mulberry, walnut, willow, sheesham, saal, chinar, mulberry and the smuggled coniferous timber from the state forests, etc, as also the value added plywood and ply board, joineries (both in CKD and SKD) made of iron and steel, brass, aluminum, synthetics, laminates, polyurethanes and the like are the other supplements in the market.
Timber market in the state is differentiated into high-end segment of consumers positioned mainly in the cities and towns and the low-end segment of consumers spread over in the officially designated A, B and C forest zones ( and municipality and other fair price zones created by the Govt. from time to time) located in the vicinity of forests. Entitled to "user rights", the consumers of the three forest zones are supplied the premium quality "A" class timber (of higher timber value) by the Govt. through the state run forest sale depots at throw away rates. In the forest zone A, the prices charged are 10-12% of the average auction rate fetched from the sale of that class of timber in the high-end markets through auctions. In the B and C forest zones the rates charged range in between 20-22% and 27-30% of the average auction rates respectively fetched in the said auctions. The low quality "B" and "c" class timber (of lower timber value) alone is however available for sale to the consumers in the high-end market, through auctions at the prices determined by the interplay of market forces.
The whopping price difference of 3-8 times between the different segments of the market viz, A,B and C forest Zones and the high-end market in cities and towns(spread over within a vicinity of 30 kms from the forests) in a situation when demand outstrips the supplies tends to be the major reason for on smuggling of timber. As the actual end user for the quality "A" class in fact lies in the high-end market in cities and towns, the timber supplied in the intermediary markets A, B and C zones at concession rates has every reason to infiltrate to reach the actual user in the terminal markets and thus defeat the very purpose of supplying timber at concession rates.
The increased euphoria about the declining forest cover prompted the Govt. to nationalize forests in late 1970s---Nehruvian paternal and socialist policies required the state to own resources/companies which create wealth to be used for the betterment of society as allowing wealth in the hands of private business smacked probable use of wealth for nefarious purposes. The commercial exploitation of the forest produce (mainly timber) by the state continued mainly with the standing marking as per working plan prescriptions. Timber thus extracted not only fed the domestic (state) market, but the markets outside the state as well.
But then the days of piss and vinegar were soon over. The Supreme court rulings of 1990s (after the recommendations of Qualitative and Quantative committee constituted for the purpose) placed an embargo on the annual cut in extraction of timber to 80 lakh cfts (in standing terms equal to about 45 lakh cfts in converted terms) from low quality, dry, fallen, dead and deceased stocks only. This was the beginning of the fall of the State monopoly in the timber business. As if it were aimed at shutting shop, the retreat is now turning out to be the virtual exit of the state in the business as the marking handed over for extraction ranges hardly to 25% to 50% of the volume allowed a year by the Supreme Court.
Perhaps due to "marketing myopia", based on the perception (of profit maximization as goal as against expanding market share) that the scarcity of timber supplies in the niche market (enjoyed by the state historically) will rake in higher earnings, the market was fed with the reduced supplies of timber. The skyrocketed prices fetched led to the fallacy (complacency as well) that the coffers of the state were getting filled up with out felling/selling more. To top it of in absence of the sustained/regular availability of the dry, diseased, snow fallen stuff (as per Supreme Court rulings) for extraction (the marking handed over for extraction during the past five years range hardly to 25% to 50% of the volume allowed a year by the Supreme Court), the consequent lower activity level, coupled with the factors like the higher operational costs incurred on scattered and low out turn stuff, the oligopolistic labor market (where the suppliers--extraction/transportation mates-- tended to be the price setters), market differentiation on the basis of social/political considerations, as also the inability of switching over to mechanization and modern technology added to the cost intensiveness and adversely affected the profitability.
With the timber imports being placed on OGL (open general license) competitors started penetrating the market left unattended and uncatered to by the state. It was not many days before the reduced presence of the state in the market and the unaffordable pricing of its products presented a God given opportunity for them to lure consumers towards their products with all the cost/price and service advantages on earth on their side. In the Head-to-Head competition some win and some lose. The strategic-conquest businessmen, willing to work even for a lower rate of return are successful in using their abilities to force profit maximizing bureaucratic leviathan to drop out of the niche (timber) market for good.
With outmoded technology, bureaucratic decision making and meager capital to fend off the competitors armed with the technology, cost effective systems and professional management we seem to be forced to watch helplessly our business interests crushed under the juggernaut of the imported timber. This is happening at the time when economists talk about internalizing externalities and environmentalists about a world where clean environment is primary and more goods and services secondary.