'The cost of free disposal', The Hindu, 1 October, 1999.

In most countries economic or social sanction against the free disposal of the dregs of consumption or production is no longer a radical idea. These stem from a certain view of the uses of the environment and aims to provide at least minimal indirect protection to the victims of pollution. It will not come as a surprise to most Indians that even in this department our country lags far behind the rest of the world. In general, the greater part of the bluster that is the establishment’s, including of its economists, response to the rising tide of protest over the degradation of our natural resources is really only a attempt to conceal a deep confusion on the matter. Now more than ever before there is need for clear thinking so that the weak and the voiceless are heard and thus the public interest is upheld. Playing out in Kerala presently is a case involving industrial pollution that has implications for far wider a region than the precise location and for far wider a set of issues than the environment alone. Indeed it has a major bearing on the question of what constitutes the public weal and how we might go about ensuring its ascendancy.

            The case I refer to here is that of Grasim Industries of the Birla Group located at Mavoor in Kozhikode District. The issue has centred on the discharge of effluents into the Chaliyar River and noxious gases into the atmosphere. Both these acts have contributed to the severe damaging of the eco-system of the river basin with effluents reaching wells and paddy fields. But not only has the pollution killed off fish and crops, it is believed to have led to the loss of over two hundred lives from cancer. Elsewhere in the world a basic concern for human life would have led to the immediate closure of the plant by public order. Here, however, over three decades of protest by the public has only elicited a cagey response from their elected representatives. Now, finally, like a bolt out of the blue has come the news that the management of Grasim Industries have applied to the Government of Kerala for permission to close down operations by November 30. It is not a matter of indifference to us that the reasons stated by the company are that the operations are not profitable now that the government can no longer provide raw material at a favourable price. Many argue that this is a ploy to win more handouts from the government . In any case, it is obvious that the operations can only be made profitable enough for the company by subsidy. But to do so would be to subsidise environmental degradation. I have not even mentioned the loss of life, and it is not as if the subsidisation is about to commence. The estimated subsidy outflow from the state exchequer thus far is rupees two thousand and five hundred crores. No sensible economist would waver even for a moment over the right decision under the circumstances.

            Waste is a complement to much of industrial activity. Not in the sense of inefficiency but in the sense of some part of the inputs inevitably emerging as unfit for further use. However, we often overlook the fact that its disposal actually uses up some part of the environment. After all, once the river is polluted the water can not be used for anything else, for as has been pointed out it is not as if India’s river waters are unfit only for drinking, they are mostly unfit for bathing either. Where this damage is not accounted for in prices paid the `social cost’ of production is higher than the `private’ cost incurred by the producer. Now there would be too much production, along with the associated pollution, from the social point of view. We have `market failure’ and some form of public action becomes necessary. One procedure is to ensure that the cost of the damage is factored in, and it is considered fair that this additional cost is borne by the producer. This is the `polluter pays principle’. Though the task of valuing environmental damage is formidable, the perceived merit of this in practice is such that the principle is adhered to in the OECD countries, with the guidelines having been published in Paris over twenty five years ago. In practice the polluter pays principle boils down to the polluter paying a pollution tax directly proportional to the extent of the damage. It has been demonstrated that taxes are superior to `command and control’ methods whereby an environmental standard is set and the polluter left to adhere to it, in that charges produce lower compliance cost. The compliance cost is the cost that polluters bear in meeting the standard. There is of course a strain of argument that the market mechanism in the presence of clearly delimited rights is superior to any public intervention of either the tax or the `command and control’ variety in that it generates optimal pollution. However, the celebrated theorem eponymous with the Nobel laureate Ronald Coase is based on the victims having to bribe the polluter sufficiently to lower damage. Apart from being morally repugnant to many, this is hopelessly unworkable where the victims are many and the polluter is single, which is mostly the case. The high transactions cost of negotiating agreement among disparate victims leaves the polluter to continue with business as usual. We are back to square one, as it were, and need to resort to public action through the mediation of the state.

            Now let us look at the situation at Mavoor in relation to some of these ideas. No pollution tax is levied. Instead the management is expected to conform to a certain standard of water pollution by controlling the effluent discharge. Details of the agreement between the Government and the management are not public knowledge. Therefore we can really only go by press reports based on wide local ratification. These point to the systematic violation of the environmental norm with the management not undertaking the steps required of it for pollution abatement. But above all, we see the failure of the command and control method due to feeble enforcement of norms by the governmental machinery. On the whole, we learn from the experience at Mavoor that there is perhaps no universally applicable standard in environmental cases. To choose the acceptable level of pollution we must, alas, use our judgement rather than a non-existent rule book. In this case we can assess the extent of the damage from the over two hundred pollution-related deaths due to cancer reported in the environs of the plant. At a meeting held at my workplace to discuss the case a young student had enquired earnestly "How does one value life in project appraisal?" This question must take the breath out of the best economist. After that we need not bother to devise schemes of how the dead might bribe the polluter in some elegant Coasian game! Those still interested in working out the pure economic value of continuing with the project may wish to ponder over a situation where after forty years of bankrolling by the state treasury the project can be kept alive only through further injection of support, to satisfy the management’s target rate of return. The project must be dumped as unworthy of further financial support.

            The reddest herring across the audit trail thus far is the one drawn by those purveying the argument that the closure of the plant would stand in the way of Kerala’s attracting capital. It is difficult to imagine captains of sunrise industry ever being impresed by the State government trying to win the favour of a management so backward. Nor are they likely to be assured by a government throwing public money into a dying enterprise out of fear of militant trade unions. As a pre-condition for attracting capital to Kerala there is need above all else for a substantial physical and social infrastructure and a transparently non-partisan governmental machinery. The conditions necessary to bring this about remain with or without the Grasim plant at Mavoor.

            Greenpeace International have described Mavoor as "Bhopal in slow motion". While we might disagree with the observation we may yet find a comparison useful. At Bhopal there was an isolated case of negligence by a multinational company allegedly callous toward Third World citizens. At Mavoor we have seen an Indian producer, subject in principle to our common political will, enjoy four decades of profitable free disposal. The permanent closure and the dismantling lock, stock and barrel of the Grasim plant might restore some of the lost prestige of the Government of Kerala. Rare is the case where economic considerations and political virtue are so closely aligned as they are here. Only the materially naive and ethically blind would fail to recognise that a sick company with blood on its hands deserves no second chance.