Poppy Economy: Belling a 1000-pound Gorilla

Boilal Gangte *

Poppy plantation destroyed at Chandel in Feb 2015 :: Pix - Shankar Khangembam

An article in IndiaToday says “The ‘War on Drugs’ is a popular slogan in Manipur politics. But a drive through the districts in the hills showed that State and Central authorities are far from winning this war”. While the line may not sound heartening, the intent and effort of the current CM and the State Government on this war is really heartening.

Let’s begin by taking you back to the 80s and 90s, when Heroin or No.4 was wrecking the State particularly Churachandpur district. I was a little boy then who dreamt of becoming somebody someday. The environment then was deeply gripped by the drug problem, there were barely any inspiring senior role models to look up to, someone who can guide you on your career or whose footsteps you would want to emulate. Even the brighter or the more skilled ones would eventually fall into the drug trap and peter out like the rest.

A promising generation was lost, which indeed was one of the darkest ages for the community. Had it not been for that dark age, I bet the State and Churachandpur town in particularly would have thrived in numerous respects–more successful individuals, better economy, better houses, healthier and happier families, and perhaps even more population.

Today, looking at the poppy threat, you cannot help but get a sense of “Déjà vu” of the worst possible form. Really ! it’s infuriating and at the same time heart-breaking to see how we could be pivoting back to the same menace we painfully recovered from few years ago.

This needs to be stopped. We need to stifle this burgeoning gorilla before it turns into a 1000 pound beast and destroy our society inside out. However, the big QUESTION is: Are we going to come out is this sooner or this is also going to be a long overhaul like the last one ? The answer is a complicated one because the poppy menace is much trickier than the heroin menace. This one seems to be far-reaching and also deep-penetrating in our economy and community.

It’s a mighty industry–About 40% of our GDP !

In 2018, the NAB (Narcotics and Affairs of Border) along with other security agencies destroyed poppy plantations worth INR 45 Cr, which translates to roughly 600 acres of plantation area. According to them it’s a mere 10% of the actual plantations.

The INR 45 Cr calculation was done at the farmer’s rate or the source rate of poppy output and not at the retail rate, which would be much higher. To have a better perspective and understanding, let’s do a little Math and estimate the size of the industry.

The monetary worth of 10% poppy plantation which was destroyed–INR 45 Cr

o The total industry size at the farmer’s price – INR 450 Cr (45 Cr/10%)
o The total industry size at the retail rate, with a mark-up of 3 times-INR 1350 Cr (450x3)
(Source : https://www.epw.in/engage/article/why-are-farmers-manipur-cultivating-poppy)

The assumptions on the rate of Poppy are taken at about INR 72 K per KG, which can go as high as INR 1.5 Lac in non-peak seasons. Also, the retail rate mark-up of 3 times is quite conservative. For such a high-risk product, the mark-up should be nearing 10x. Therefore, the assumptions are taken at a very conservative estimates and it can go much higher.

An INR 1350 Cr industry in itself is a huge industry for a State like Manipur which has a GDP of just about INR 32K Cr. Just to give a perspective, the annual turnover of all telecom companies put together (Airtel, Jio, Vodafone Idea & BSNL) in Manipur is INR 500 Cr. Telecom which is the most consumed & ubiquitous products after water is not even half of what the poppy industry has become. That is how big the baby gorilla has grown to now—fascinating from a number point, but quite worrying from an economy point of view.

However, the impact of this money on the economy cannot be just the size of the industry. To estimate the impact on the GDP of the State, we need to include what is called “The Velocity of Money”. Just for the unversed, let’s have a simple explanation on what “Velocity of Money” is all about. In plain English, it’s nothing but the number of times the money exchanges hand in the economy or the number of times the money multiply in the system.

For illustration:

o You have Rs 1000 and you lend Rs 500 to your sister.
o She opens a tea shop with the Rs 500 and makes a profit of Rs 300.
o She further lends the Rs 300 profit to her friend for opening a pan dukan near her tea shop andher friend makes a profit of Rs 200.
o At the end, you continue to own Rs 1000, your sister owns Rs 300 (after paying you back Rs 500),your sister’s friend owns Rs 200 (after paying back Rs 300 to your sister).
o So, your initial Rs 1000 results in Rs 1500 (1000+500+200) in just 2 transactions. This is called the velocity of money, the multiplier effect when money exchanges hands.

The rate of velocity of money differs from source to source, individual to individual, type of transactions and also the nature of the money. Meaning, if you have cash in hand, you are more likely to transact vis-à-vis if all your money were deposited in the bank – it could be on account of impulse buying or convenience buying or if you don’t have cash, you may postpone your purchase because the seller accepts only cash and you don’t have ATM near you at that moment and you are in a hurry, the reasons can be many.

Also, you will be more generous in spending when you have a good lucrative source of money vis-à-vis if your income is meagre and can meet only ends need. It’ll be intuitive and common sensical to assume that the Poppy Industry will deal more in cash than bank transfers. Further, the industry is more likely to spend rather than deposit in banks or hoard cash at homes.

Hence, the velocity of money for the “Poppy Economy” will be higher than the average public money. The velocity of money in India post demonetization (2016) was about 7.8 times (M1 Level), which probably would be higher now. So, it would be safe to assume that the velocity of money for Poppy Economy will be in double digits.

Even at a velocity of 10, the GDP of Poppy Economy is INR 13,500 Cr. This is about 40% of the economy of Manipur. Given this, it is not going to be an easy task to dismantle such a force, as it will have an impact on the formal economy of the State. From a pure academic point of view, just imagine if we were to drain out this INR 13.5K Cr from our economy at one stroke, it’ll be catastrophic, much more than the demonetization impact or any other economic debacle, which the State has ever faced before.

Poppy economy has become mainstream–A strong and wide trickle-down effect !

First, unlike the Heroin days, the current poppy menace has become quite a “mainstream” in our economy and in our lives.

Most unlikely, money earned from Heroin in those days would not have entered the Church through tithes i.e., one tenth of annual/monthly produce or income. [RG1] But poppy earnings do and such is the depth it has entrenched into the community and the economy.

Next, it has become a life changer for many village farmers, while they are not involved in the poppy trade. They are only farm labourers fending for their families, who have better wage opportunities for the same farm work they have been doing since ages. Therefore, the penetration of poppy economy is not just in the nexus, cartel or the supply chain, but it has a huge and wide ancillary which are part of the formal economy.

Lastly, because of the sudden inflow of money due to poppy economy, it has a huge trickle-down effect to many other industries. Land prices have increased as people can afford more, the car industry is seeing a surge, the construction industry is feeling the positive vibes, the clothing industry is not one to just stand and watch, you name any industry, it has somehow touched the lives of individuals and families.

To conclude !

There is not an iota of debate or dispute (??) on whether it needs to be stopped. The only question is how to stop. Unlike the “Heroin Menace”, the “Poppy Menace” is not an external invasion, but an internal revolt which is growing deeper roots by the day.

Therefore the “War on Drugs” is a daunting challenge as it’s much more complicated – the scale is larger, it’s deep rooted in the society, and it has huge implications on the economy. It will require a robust planning apart from an execution excellence. We wish the CM and Team “War on Drugs” our absolute best and the strongest of hope, for they will need plenty of it.