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There are two kinds of smog in Delhi these days.
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One is the kind in the air around you.
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It affects visibility, causes accidents on the street, causes flights to get delayed
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or cancelled, leads to respiratory problems.
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And the other is a smog that prevents clear thinking.
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The smoke of misconceptions combines with the fog of bad ideas to lead to a smog in
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the mind that causes intellectual accidents.
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What are we to do about this smog?
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Welcome to the Seen and the Unseen, our weekly podcast on economics, politics and behavioral
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Please welcome your host, Amit Verma.
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Welcome to the Seen and the Unseen.
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I live in Mumbai and I feel a mix of sympathy and schadenfreude for my friends in Delhi.
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When they're not complaining about the government, they complain about the smog.
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Well, I wanted to dig a little deeper into the causes of this Delhi smog and what insights
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a little economic thinking could give me on it.
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So I've invited my friend and a frequent guest on the show, Vivek Kaul.
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Vivek has written many books and he's a columnist for Equity Master, for whom he wrote a newsletter
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with the title, The Economic Cause of the Delhi Smog.
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That's exactly what I want to get to the heart of today.
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Vivek, welcome to the Seen and the Unseen.
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Thanks Amit for having me over.
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So tell me more about the root causes of Delhi's smog.
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So that could take an entire show.
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So you see, basically, you know, the rice that is grown in Punjab is mechanically harvested.
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And what that does is the harvesters cut and clean the rice from the paddy and leave behind
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the straws on the field.
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Now these straws are six to eight inches in height.
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You know, when the rice harvesting season ends, the wheat season is about to start and
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the gap is two to three weeks.
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So the farmers who have been growing rice now need to grow wheat and the time period
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So they need to get rid of this straw very, very quickly.
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Obviously, you know, they could hire laborers and, you know, get them to cut the straw,
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but that would involve spending money.
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There are machines that are available, you know, which sort of take care of these straw
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and also sort of plant the seeds to grow wheat.
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But that also involves, you know, spending a lot of money.
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So the farmers take the easiest way out, which is they just light a match and they burn the
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And this straw is also, in case my listeners are confused, this straw is also referred
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Yeah, it is referred to as stubble as well, yes.
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So essentially, the core cause of Delhi's pollution is farmers in Punjab who are burning
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the stubble and not so much the vehicular traffic of Delhi per se.
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And you know, the last time, for example, Arvind Kejriwal did his whole odd even thing.
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It had negligible impact on the air of Delhi and I believe he's planning to do it again,
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but that's just optics.
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The root cause, the problem that you have to solve is the stubble.
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And you know, what happens is, now obviously, you know, the listeners might want to know
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as to why nothing happens when wheat is harvested.
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Now the stubble of the straw that wheat leaves behind is low on silica content, okay.
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Or rather the stubble of the straw that rice leaves behind is high on silica content and
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hence that cannot be cut and fed to animals, okay, which the wheat straw can be.
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So hence the farmers really don't have any option other than sort of burning it.
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I mean, there are, you know, I mean, I've read news reports where, you know, this straw
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can be used as an input into paper boards, et cetera.
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But then, you know, paper boards are made all through the year and, you know, this straw
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is available only for a very limited period.
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So that doesn't leave the farmer with many options.
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And the interesting insight I got from reading your newsletter for Equity Master on the subject
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was that for Punjab to grow rice is actually not a natural thing.
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It's an unnatural set of circumstances that has made Punjab one of the leaders in growing
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So Punjab is basically a semi-arid region and, you know, to grow rice, you need a lot
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So Punjab in the first place should not be growing rice, but Punjab grows a lot of rice.
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It's the third largest grower of rice in India after West Bengal and Uttar Pradesh.
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In 2015-16, it produced around 11.85 million tons of rice, okay.
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Now what happens is that the government of India procures rice and wheat primarily from
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the farmers using institutions like the Food Corporation of India in order to distribute
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that rice and wheat through the public distribution system, which is essentially a chain of more
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than five lakh ration shops all throughout the country.
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Now the funny bit is that nearly one-fourth of the rice that the government of India procures
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all through the country is procured in Punjab.
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So in 2015-16, around 9.35 million tons of the 11.85 million tons which was produced
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was procured by the government.
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So the Punjab farmer has a ready sort of customer in the government of India.
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He doesn't have to sort of go looking around to sell the rice that he produces.
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So he doesn't have to worry about market dynamics.
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He knows that the rice will be sold.
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He knows at what price it will be sold.
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And the funny thing is that the, you know, Punjab as a state is a roti-eating state.
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So almost all the rice that they produce is sold.
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Very little gets consumed within the state.
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What is not bought by the government is bought by the private traders.
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The other thing that is, you know, that sort of essentially ensures that the Punjab farmer
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grows rice is the fact that electricity is free in Punjab.
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And this ensures that the farmers can use, you know, can pump a lot of water which is
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needed to produce rice.
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So you know, just to give you a sense of comparison, you know, when Punjab is the most productive
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state in India when it comes to rice.
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It produces close to 39.74 quintals of rice per hectare, okay.
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But this calculation does not take the amount of water that it uses to produce that rice.
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So in a state like West Bengal, you know, you require around 2169 liters of water to
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But in a state like Punjab, you require almost double the amount.
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It's around 4100 liters and a little more than that.
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So what that tells you is that there are two wrong incentives essentially which are encouraging
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the Punjabi farmer to produce rice.
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One is the fact that there is a ready customer in the government available, you know, buys
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rice and the fact that an unlimited amount of water can be pumped because electricity
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So that ensures that Punjab produces a lot of rice and once Punjab produces a lot of
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rice, obviously, you know, it is left with a lot of stubble which the farmers burn so
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that they can quickly move towards producing wheat.
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Over the years, you know, the government has done a few things here and there and there
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is a fine which sort of, you know, the farmers who burn the stubble need to pay and this
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fine is essentially, you know, it starts at around rupees 2500 on burning these after
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harvest rice straw on a land of up to two acres.
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Then there is 5000 for land measuring two to five acres, 7000 fine for a land greater
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than five acres and less than 10 acres and beyond that there's a fine of 15000 rupees.
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So you know, the fine is so low that it essentially makes sense for the farmer to burn the stubble
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rather than higher labor and get the labor to cut that stubble or straw.
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So the fine does not work.
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And even if the fine was higher, it would just be a rent seeking outlet, you would just
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give a bribe to the inspector.
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Yes, and more than that, you know, I mean, as I keep saying, the capacity of governments
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in India to do anything is very, very limited.
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So you know, there is no data from satellite imaging, which shows satellite data shows
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that there were 40,510 fire incidents in Punjab alone between September 27th and November
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Now, you know, 40,000 is a huge number.
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You know, how many of those farmers, you know, could the government go and find, I mean,
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So fines don't make any sense.
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I mean, they do not dissuade the farmers from burning the straw.
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In fact, you know, one of the, one of the news reports I read and it had quoted a farmer
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who summarized, you know, the situation very well, it's, you know, he basically said that,
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you know, you just need to light one matchstick.
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So you're essentially competing against that.
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I mean, it's as convenient as just lighting a matchstick.
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So in terms of both actual cost and opportunity cost, you can't beat that.
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That's a quick and simple way for them too.
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So now the political economy of this is interesting that these are, we know the two things that
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the government does wrong, that A, there are the MSPs for rice and it guarantees that it
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So the procurement system is messed up and doesn't go, is not aligned with market signals.
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And two, there's a free electricity.
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I mean, this is really the Delhi smog is actually an unseen effect of free power to farmers
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in Punjab to a large extent, which is not an obvious connection now, because farmers
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are both an important vote bank and a wealthy vote bank and, and, you know, farmers in Punjab,
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I mean, Kalidhal is a party of large farmers, basically of large farmers and they can afford
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to buy other parties per se if the need so requires.
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So therefore politically, the political will to actually do something about this, no matter
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what you might say becomes a sort of problematic.
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And much as I am not a fan of Kejriwal, it then makes me wonder that what is a poor guy
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He has got a problem in Delhi, which is caused by something that the farmers of Punjab are
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doing and the farmers of Punjab don't give a shit and they've effectively bought, I mean,
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the Punjab government has to cater to their wishes.
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So what is the way out?
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I mean, the way out is essentially, I mean, and again, this is a solution which may not
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have political will, but I think this is, you know, one of the solutions going around.
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So you have to essentially disincentivize the farmers in Punjab from growing as much rice
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It can happen by essentially ensuring that the food corporation of India sets up more
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procurement centers in states where it's not buying a lot of rice.
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Now take the example of a state like West Bengal.
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Now West Bengal produces around 15.7, rather it produced in 2015-16 around 15.75 million
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tons of rice of that only around 10% got procured.
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Now even though, you know, West Bengal is a rice eating state.
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Now so what that does is given that the government procures very little, a lot of that rice ends
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up being sold at a price which is lower than the MSP.
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Now this is also true about states like Bihar and Assam.
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So obviously, you know, these are states, you know, Bihar, West Bengal, you know, they're
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So there is a lot of water going around to grow rice.
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So more procurement needs to happen in these states and procurement needs to move out from
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a state like Punjab, okay, number one.
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The second thing is you obviously, they, you know, once they don't grow rice, they need
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to grow something else.
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So one of the options that, you know, a gentleman called Ajayveer Jakar who is, you know, sort
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of, you can call him an agriculture economist made was that the farmers in Punjab should
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be encouraged to grow maize.
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Now, which would happen only once the government sort of starts procuring maize.
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Now the government of India right now only procures rice and wheat.
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And given the fact that our private, you know, the private markets in agriculture are so
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screwed up that expecting a solution from there is, you know, is very difficult.
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So the procurement needs to move out from Punjab and it needs to go to other states.
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And once, you know, this, the procurement is spread around, even if there is, you know,
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the stubble is burnt, it won't cause so much problem because the, the, the, the production
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of rice would sort of, and procurement of rice would be spread over a larger area.
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The second part is, you know, in states like Bihar and West Bengal, labor is still cheaper,
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you know, vis-a-vis a state like Punjab, which is a fairly rich state.
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So there, you know, you can still hire people to sort of cut the stubble and get rid of
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So this needs to happen.
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Now the question obviously is whether this will happen or not.
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And the answer is no, because, you know, the, the rich farmers of Punjab have been used
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to the government buying their rice over the years.
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And this is essentially again, one of the things that has happened because of the green
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revolution in the state.
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You know, when initially farmers started, you know, newer varieties of wheat were sort
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of imported from Mexico and the farmers were essentially encouraged to grow that wheat.
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The government in order to support those farmers also started to buy that wheat.
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And over a period of time, you know, it started to buy rice as well.
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So this is a system which has been in place for close to, you know, four and a half to
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five decades, and it will not be very easy to unravel it.
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My slightly skeptical take on the solutions you mentioned, I mean, I know they're not
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your solutions or the solutions that are generally out there, but my skeptical take on those
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two solutions were that they're both coming from a sort of a central planning mindset.
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I mean, one being that you do more procurement in the gangetic states like Bengal and so
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And the other being that you also start procuring maize or whatever and try to change the incentives
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Well, I think that the whole central planning mindset rather is fundamentally flawed and
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has led to this problem in the first place, which will bring me to another question.
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I'll just elaborate on this.
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If you just let me, so, I mean, I'm not a supporter of central planning in any way,
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but you know what happens Amit, when a system is in place, you cannot just automatically,
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you know, let it go and move towards another system, but that causes a even bigger, I mean,
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look at what demonetization did.
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I mean, it essentially demonetization came right out of the central planning mindset
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and that's why it was such a massive disaster.
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But then, you know, it tried to attack a system which is in place, the black money system.
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You had, you know, these things of, you know, unraveling that system overnight.
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Yeah, but it was an act of mass coercion that led to, it was an act of mass coercion and
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that led to less freedom in that short term that had happened, whereas dismantling agricultural
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markets slowly would actually remove coercion and would lead to more freedom.
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My point is not that you do it over time.
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My whole point is, and my point also has a dilemma, it's not a panacea and I'll get
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to that because that's the next question I'm going to ask you.
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But I think what happens is that not only are agricultural markets controlled strongly
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by government and thus perverting the incentives for the farmers and leading to situations
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like this, but because of that, private markets also can't operate and information that spreads
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everywhere through market signals like prices don't otherwise get going.
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But leave that aside, even assume, let's for a moment have a thought experiment where all
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of this doesn't exist and we are a libertarian utopia and the market works perfectly.
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And let's assume that even in that situation, Punjab happens not to be semi-arid as it actually
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is, but it has enough water and rice as something natural for it to grow and there's enough
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demand for it to grow all of it.
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So assume that despite those perverted, if those incentives don't exist, but the conditions
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are different, they're still growing that much rice and they're still burning the stubble
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and the externalities of that, that is the harsh side effects of that are being felt
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by the people of Delhi.
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What kind of solutions would then exist in that state of being?
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I mean, then you'll have to essentially penalize them for damaging the environment.
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And disincentivize them, so something like the famous carbon tax that people talk about
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You basically have to ensure that the price of rice that is produced in Punjab essentially
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takes the cost of destroying the environment into account as well.
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Once that is done, automatically that rice will become more expensive in comparison to
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rice being produced in a state like West Bengal.
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And the demand will go down and they'll have to shift to something else.
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So the optimal solution is that you figure out a penalty on burning stubble and find
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a way to with given state capacity, find a way to enforce that so that it actually becomes
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unprofitable for the farmers to grow rice because their costs go up and they have to
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shift to something else.
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But that will never happen essentially because, you know, political parties have elections
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Which holds true for any solution.
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I mean, it seems that poor Kejriwal will keep tweeting about this, but there's nothing he
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At least, you know, not nothing in the near future.
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Vivek, thanks so much for coming on the show, it was great having you.
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Thanks for having me, Amit.
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If you enjoyed this show, do head over to your nearest bookstore, which is probably
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Amazon to pick up on a Vivek's books, either the Easy Money trilogy or his latest book,
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which I highly recommend, India's Big Government.
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You can follow him on Twitter at call underscore Vivek.
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You can follow me at Amit Verma, A-M-I-T-V-A-R-M-A.
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You can browse earlier episodes of The Scene and the Unseen at sceneunseen.in.
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Thank you for listening.
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And hey, if you enjoy listening to The Scene and the Unseen every week, but you're worried
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