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India in Transition

Accusations of Corruption: A Cautionary Tale from Indian Tobacco Auctions

Amrita A. Kurian
January 30, 2023

The Indian public believes corruption among public officials to be endemic and an indictment of the state’s failures of transparency. Against this backdrop, there is nothing exceptional about the recurrent accusations of corruption against the Tobacco Board, the state regulatory authority that mediates auctions for cigarette tobacco in India. During my fieldwork on Board-regulated auction floors in Andhra Pradesh in 2016, such accusations were frequently used by both private-sector tobacco traders and tobacco farmers to question state actions in the markets. Even those that did not go so far as to deny the state a role in markets implied that the Board was without redemption and should have its wings clipped.

However, accusations of corruption also serve more instrumental purposes. In the case of Indian tobacco markets, specific charges of corruption directed at Tobacco Board officials are used to express the resentment tobacco farmers and traders feel about the broader direction of the state’s regulatory actions. As they circulate, such accusations enable political mobilization by various interest groups, who use them to steer the state’s remedial actions in directions that align with their interests. At the same time, without addressing the underlying market conditions that threaten farm livelihoods, remedial actions to curb corruption taken by the state remain, at best, partial solutions to larger problems.

Before the Tobacco Board began conducting auctions for cigarette tobacco in the mid-80s, Indian farmers relied on private-sector traders to grade and price tobacco. This dependence allowed traders to set grades and prices in their favor. In the most egregious cases of exploitation, traders reneged on payments to farmers. Responding to the outcry that followed, the Board introduced state-mediated auctions for cigarette tobacco. Alongside the new auction system, the Board introduced a simple alpha-numeric grading system to enable farmers to grade their own tobacco. The Board also required all tobacco traders and farmers to register with them before participating in auctions, mediated all trade in cigarette tobacco, and maintained a written record of every transaction.

The increased state intervention in the Indian tobacco sector has produced a curious inversion of earlier conditions. Whereas earlier, the state had been called upon to look into the infractions of tobacco traders, today, it is the traders who seek to curb state infractions. Talking about his duties, Singaiah Garu, a representative of the tobacco traders association, explained to me that his team was responsible for monitoring grades assigned to tobacco bales by the Tobacco Board’s grading officials. According to Singaiah Garu, the Board has incentives to erroneously overstate and understate grades. If the Board assigns a bale a grade higher than its true grade and buyers take the Board’s evaluation at face value, the tobacco bale will be sold at a higher price. The farmer who owns the bale will earn a higher price for lower grade tobacco. At the same time, the Board can assign a lower grade to a bale, only to alert the buyer to this fact during bidding. The buyer will then have to pay a higher price for the bale, and the auction record will reflect a higher price for what has been registered as lower-grade tobacco. In both cases, the Board will get credit from the Central Government for selling tobacco at higher prices.

Singaiah Garu’s narrative reveals the resentment tobacco traders feel toward the Board, who they accuse of favoring farmers’ interests over theirs. As Singaiah Garu puts it, “sometimes, farmers will influence the Tobacco Board officials…[the farmer will say] ‘sir, put better grade’….but they will not accept our recommendation or policy....we cannot influence the Tobacco Board.” Most of the accusations of corruption I heard on the auction floor had a similar element of hearsay and conjecture. And like gossip, they spread like wildfire.

Farmers, on the other hand, believe the Board needs to intervene more on their behalf. Considering market conditions, they have good reason to be aggrieved. In India, the market for cigarette tobacco is an oligopsony. A handful of domestic companies and exporters dominate markets, giving them inordinate price-setting power. The Board has limited abilities to push prices higher and cannot consistently assure farmers of a fair price. As a result, farmers are forced to accept a lower price or hold onto perishable crops until a buyer, who will give a better price comes along, with little certainty if or when this will happen. While farmers are aware of the role tobacco companies play in decreasing their remuneration, they, too, direct their resentment against the state, which is mandated to serve them.

Both tobacco traders and farmers also use their peers’ resentment of the Board to mobilize politically toward shifting state mediation in their favor. Every few years, these actions yield favorable results for individual market participants. For instance, just as the Board had instituted manual auctions in response to farmers’ complaints against exploitation by traders in the 1980s, the Board instituted e-auctions in 2011 to replace manual auctions in response to anti-corruption protests by tobacco companies and farmers. They hoped this reform would convince their stakeholders of the transparency of the Board’s conduct at auctions. Since then, traders and Board officials have used hand-held electronic devices to conduct double-blind auctions. Neither traders’ nor farmers’ names are revealed in the process, and final bids are automatically recorded to prevent officials from altering sales records. Despite many technological glitches along the way, most stakeholders I talked to, including Board officials, agreed that e-auctions had curbed state corruption.

However, relying on technology to enact market transparency without addressing underlying issues—like the lack of market competition, price stagnation, and limited state capacity to influence prices—also worked in favor of traders and undermined the state’s capabilities. As a veteran Board official explained, the double-blind process does not allow officials to spur competition among buyers by pitting them against each other. With reduced state oversight, buyers can hide behind handheld devices and collectively refrain from bidding, driving prices down in the process.

Thus, accusations of corruption among public officials have purposes beyond calling for state accountability. They drum up resentment against the state and rework it into political mobilizations that discipline state actors, trim the state’s capacity, and limit its function in the name of transparency. In the case of Indian tobacco markets, these actions have amplified demands for permitting Foreign Direct Investment (FDI). While domestic tobacco companies prefer the protection of an underperforming state, many tobacco farmers’ groups are split on the issue of FDI, a potential return to a pre-Board era when farmers and international traders interacted directly. If enforced, such measures will spell victory for health advocates who are urging the state to withdraw its support from the tobacco sector. But they will also favor large-scale tobacco farmers and multinational tobacco companies. Without water and lucrative alternate crop options, their long-term consequences for the region’s small tobacco farmers and agricultural laborers remain to be seen.

Amrita A. Kurian is a CASI Postdoctoral Research Fellow.
(Individual named in this article has been referred to using a pseudonym)

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

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