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India’s Planning Problems

Jun 25, 2012 • 394 Views

India has a jute shortage that will affect a lot more than bags.

Our story began decades ago with India’s “license raj,” a bureaucratic reign (raj) that followed the British colonial raj. What to produce, who to hire, how much to pay, when to fire, you needed a license. While much of the license raj has been replaced by more of a market system, still, some of its remnants remain.

And that takes us to jute.

During the 1980s, the Indian government mandated that 100% of the wheat crop be packed in Indian-made jute bags. 250,000 factory workers make jute products and 5 million Indian farmers grow jute. The goal was Indian wheat, Indian jute, lots of production and lots of jobs.

The problem though, is that increases in wheat output have far exceeded jute production since 1990. By law, plastic bags can be used for 20% of the harvest in an emergency but no more. The rest has to be in jute. But there aren’t enough jute bags and packers add that some tear too easily.

You can see where we are going. With monsoon season starting, and a warehouse shortage also a problem, the wheat is going to spoil.

At #132 out of 183 nations in the World Bank’s Ease of Doing Business Index, India is still constrained by bureaucracy.

After reading about the jute bag shortage in WSJ.com, I went back to Timothy Taylor’s Teaching Company lecture on the license raj. His superb 36 lecture “America and the New Global Economy” course is a wonderful “listen” because of the stories he includes.


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