How do you catch a fish? A straight answer is one where you get hold of a fishing rod; attach a line (fishing); attach a hook at one end of the line; add bait to the hook and cast it in a river or a pond. The fish does the rest leaving you only with the minor task of reeling it in.
A somewhat convoluted way of going about the same task is best summed up by an old Tamil proverb which, loosely translated, goes something like this: Place a ball of butter on the head of a stork (The stork is considered an expert at netting a fish. So much so that the Tamil poet Avvayar waxed eloquent about its somewhat picky taste in the matter of the variety of fish that it would like to feast on). The idea being that the butter will melt and course down the eyes, thus temporarily blinding the bird. Thereafter, one simply walks up to the stork and plucks the fish off its beak — as easily as taking candy from a child.
It doesn’t require any great perspicacity to see that there couldn’t have been worse solution to the problem of catching a fish. But, that isn’t really the point. It is actually a metaphor for describing a decision that is not really a decision at all.
The Government of India recently gave a demonstration of this with a decision that had all the ingredients of what you would expect in a decision and yet, in reality was so bereft of any practical value that it is tantamount to catching a fish by placing a ball of butter on the head of a stork.
Sugar-y Problems
Let us first understand the nature of the problem before we go in to an analysis of the Government’s solution to the problem. Farmers cultivating sugarcane in the country supply it to sugar mills located nearby. The get paid based on the sugar that is extracted from the cane supplied from them. By the very nature of the arrangement they get paid after a while. The arrangement has given mills a licence to settle their own bills at their own sweet time.
And it so came to pass that as at the end of the last sugar season (October 2014-November 2015) their dues had mounted by an order of magnitude that has begun to hurt the farmers. Estimates vary,but it is believed to be anything between ₹15,000 crore to ₹20,000 crore across the country. Sugar mills are saying that they don’t have the money as they are stuck with a huge inventory of sugar produced in the previous year.
Additionally, they also incurred losses on the sugar sold in the domestic market last year, eroding their working capital base even further. Global prices too are ruling at levels below the total cost of production. Unless the Government comes up with a mechanism to incentivise sugar exports, the mills argue, they won’t be able to pay the farmers their dues.
The Government faces a multitude of challenges. One, it cannot remain a mute spectator to the financial distress of the farmers. But punishing the sugar mills for their failure to pay the farmers their dues is also a harsh step when the Government intervenes in every aspect of the sugar economy.
In any case, the sugar mills are part of the eco-system of the agrarian economy in many states. So, two, the Government cannot penalise them to the point where their survival is at stake. And three, incentivising sugar exports (a subsidy) can fall foul of the trade mechanism agreed upon by members of the WTO to promote global trade. That option is ruled out. So what is the Government’s solution ?
The ‘Solution’
The Government is telling the sugar mills that if they export one kilogram of sugar they would pay ₹0.45 paise to the farmer who supplied the cane. Since it roughly takes 10 kilograms of cane to produce one kilogram of sugar, it translates into a payment of ₹4.50 to the farmer of the money due from the mill. But there is a catch: the mills will have to achieve at least 80 per cent of the export quota fixed for each of them for the sugar season 2015-16, and if they have manufacturing capacity for the production of ethanol then they should have supplied 80 per cent of the quantity that is required to be supplied to oil marketing companies for blending with petrol.
The Government reckons that it would be able to liquidate roughly ₹1,150 crore of the ₹15-20,000 crore monies owed to the farmers in this manner. This is the substance of the policy decision announced recently.
On a closer analysis one could see that this is not much of a decision. If dues to the farmers are of the order of ₹20,000 crore, how could a decision that addresses only a tiny fraction (less than 10 per cent) of this sum be termed a solution at all?
To compound matters, the solution is not here and now, but at some distant time in the future. The sugar export and ethanol supply obligations that mills have to fulfil are for the sugar season 2015-16.
It wouldn’t be until quite late in the sugar season that any company could reasonably expect to fulfil the 80 per cent target on export performance, and ethanol supply to petroleum marketing companies. So the farmers are not going to receive any money for the foreseeable future.
But family members have to be fed, school fees for children, dress for the festival season and so on, have to be in the now and not well into the future. So a farmer would be justified in seeing this as some poor joke being played on him in the name of official relief.
Politics and Management
This leads us to another interesting question. Why makes a a Government take such a decision? The Government is also an organisation and it is also run by managers. Civil servants and politician-ministers are in the final analysis, performing only managerial roles and hence conventional management concepts should apply with equal force to their administrative situations as well. Does management theory then offer any explanation? As it happens, it does.
You might think that managers take only such decisions that maximises the advantage to their firms. But Herbert Simon, a Nobel laureate, who taught Administration in the Department of Industrial Administration at the Carnegie Mellon University for long, had studied decision making behaviour and thought differently.
Yes, a typical manager’s decision could be described as ‘rational’ (maximising advantage) only in a manner of speaking. Their rational behaviour is bound by their peculiar situation under which they operate — they are required to evaluate the innumerable options before the selection of one can be described as a ‘rational’ (profit/advantage maximising) decision.
But the time within which a decision needs to be taken is limited and throw in, additionally, the fact that one can never really be sure if all the options have been evaluated as there is never a clear knowledge of the universe of all possible options, a manager’s predicament can easily be understood.
In the circumstances, Simon argues that a manager’s ‘rational’ behaviour is also circumscribed by his own cognitive abilities of analysis. He describes it as a ‘bounded rationality’.
The manager is looking for a solution that is at once ‘satisfactory’, and would also ‘suffice’ for the moment. He coined the term, ‘satisficing’ solution to describe the restricted nature of rational behaviour (bounded rationality) that a manager adopts.
Viewed thus, the Government’s decision on the problem of cane arrears of farmers is certainly not the most ‘rational’ decision’, in the sense that it maximises the advantage in a problem situation. But not taking a decision would put the Government in bad light as it will be painted as a case of the Government being indifferent to the farmers’ financial plight.
But it also doesn’t have the luxury of writing out a cheque for ₹20,000 crore to liquidate the dues of the sugar mills to the cane farmers, as it is actually gifting that sum to the sugar mills. In the circumstances, the decision should suffice for now and must be deemed as additionally as a satisfactory one. In short, it is ‘satisficing’.