VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 79

An Analysis of the Property Rightsof Forest Dependent Communities:The Indian Context

B Sundar

KEY WORDS

Environment

Forest DependentCommunities

Vana Samarakshana Samithi(VSS)

Social Entrepreneurship

Forest Administration

Private Participation

Liberalization

For the greater part of the twentieth century, the ownership and property rights

of forests and other natural resources (like grasslands, territorial rivers, lakes

and streams, hill ranges and mountain systems) have vested with the Indian

state. Since 1990, various states ceded a portion of these property rights over forest

lands and usufructs from natural resources (like fodder grass, lops, tops, branches,

various types of non-timber forest products and so forth) to forest dependent commu-

nities (also referred to as forest communities/forest dwelling communities/vana

samrakshana samithis (VSS) in this paper) with a view to involving these communi-

ties in the protection and sustainable development of the forests and natural resources

through the joint forest management programme.

In view of the accrual of these property rights to the forest dependent communities, the

benefits from forests and natural resources are rival in consumption between these

communities who now use forests and natural resources for survival needs (food,

medicine, firewood, agricultural implements, shelter, fencing, non-timber forest prod-

ucts for local trade and fodder for livestock) without fear of the law and the industrial

sector which uses these resources as raw materials for their businesses.

There is a perception that the vesting of property rights with the forest dependent

communities over forest lands and its products through the joint forest management

programme has not resulted in rejuvenation of degraded forests, perhaps leading to

environmental degradation, which is supported by a few studies (Chakrabarti & Datta,

2009; Sagar & Singh, 2004). An opposing, popular perception exists that since forests

and forest dependent communities have co-existed with each other for centuries, the

fear of over-exploitation of forests and consequent environmental degradation is not

valid and well-grounded.

Similarly, the recent rulings of the judiciary on the issue of the use of forests and

natural resources as raw materials by private industry leads one to infer that such

usages result in over-exploitation of natural resources beyond their carrying capacity

leading to environmental degradation. This common knowledge has also been popu-

larized by media to some extent.

In the backdrop of the above opposing perceptions, the paper focuses on three ques-

tions:

NOTES AND

COMMENTARIES

presents preliminaryresearch, review of

literature and commentson published papers or on

any relevant subject

80

1. Does vesting of property rights over land and natural

resources with forest dependent communities lead to

environmental degradation?

2. Can private industry and entrepreneurship models

be harnessed to address the livelihood concerns of

forest dependent communities in an environmental-

friendly manner?

3. What would be the impact of integrating private in-

dustry, entrepreneurship, and forest dependent com-

munities on the economy?

Before embarking on an analysis of the issues involved in

answering the above questions, it may be useful to under-

stand environment and its services from the perspective

of public goods.

Our environment is a global public good (GPG) whose

benefits accrue to a broad group of countries and popula-

tions across the world in a sustainable manner without

compromising the needs of such benefits of future gen-

erations (Anand, 2004; Kaul, Grunberg, & Stern, 1999).

Sunlight and air can be thought of as pure GPG whose

benefits accrue to all the population groups in the world.

By their very nature, GPG cannot be provided by national

governments alone, but needs international cooperation

amongst several nations at a global level. Take the ex-

ample of climate stability, a GPG that is essential for the

well-being of mankind. The south eastern coast of India

was ravaged by a tsunami in 2004 which was caused by

unstable climate conditions over which the state had no

control. International cooperation amongst nations alone

would provide and secure climate stability.

REVIEW OF LITERATURE

We begin by examining the meaning of property rights,

GPGs, and the linkages of property rights with environ-

mental resources, an important class of GPGs. Prasad

(2003) defines property rights as a claim over a series of

benefits that are legally protected by the state. Pindyck

and Rubinfeld (2005) define property rights as a set of

rules and regulations that are legally protected and which

define what firms and individuals may do with their prop-

erty.

Referring to the pithy example of resource-poor Indians

requirement to pay huge compensation to the resource-

rich Western developers exploiting the Amazon basin for

wood resources, Dragun (1999) observes that the private

property rights over environmental resources aimed at

creating a free market mechanism to allocate environmen-

tal resources to their best use is not a suitable mechanism

to solve externality problems relating to environment. In

the Indian context, the State is the owner of all geographi-

cal areas classified as forests in statutory records under

the Indian Forest (Conservation) Act, 1980 (Gazette of

India Extraordinary, 1980). Private individuals/institu-

tions must obtain permission from the state on a lease

basis to extract produce and usufructs from lands classi-

fied as forests.

In a diametrically opposite vein, Prasad (2003) observes

that problems relating to environmental degradation can

be solved if property rights over environmental resources

are defined, are universally applicable and enforceable

which ensures that the commercial incentives for indi-

viduals and firms to use their resources efficiently are

aligned with sustainable environmental management

practices. The author asserts that establishment of pri-

vate property rights over environmental resources is pref-

erable to community ownership.

Unnevehr (2004) provides more clarity by considering

property rights as an intermediate public good that is

necessary for the smooth supply of good quality environ-

ment, a final GPG, as negative/positive externalities are

generated in the management of environment which tran-

scend national borders. Under these conditions, the re-

searcher argues that it is necessary to internalize

incentives as in the case of sustainable forestry and natu-

ral resource management practices driving firms to adopt

green labels and influencing consumer choice.

Despite the ambiguous conceptualization of property

rights over environmental resources as noted above, it is

clear that varying costs would need to be incurred for the

provision of GPGs. The weather reports of the World

Meteorological Organization are a GPG which can be

disseminated across the world at negligible costs

(Clunies-Ross, 2004). But huge financial resources in the

form of technical know-how and pollution-free equip-

ment/s may be required to reduce the greenhouse gases

emitted by the Indian airlines industry.

According to Clunies-Ross (2004), GPGs not only include

narrowly defined goods and services like climate stabil-

ity, weather data, elimination of dangerous diseases, and

financial stability, but also humanitarian concerns like

AN ANALYSIS OF THE PROPERTY RIGHTS OF FOREST DEPENDENT COMMUNITIES...

VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 81

world social justice, health, education, pollution-free en-

vironment and poverty eradication that have been

adopted in the Millennium Development Goals by the

United Nations in 2000. Clunies-Ross estimates that de-

veloping countries may need an additional $50-$60 bil-

lion per annum between 2002-15 to meet the millennium

development goals and proposes the following sources

of funding that may help poor and developing countries

to achieve them: regular allocation of special drawing

rights of the International Monetary Fund, internation-

ally coordinated currency transaction tax, and philan-

thropy from large private fortunes. These estimates suggest

the scale and order of funding required for ensuring the

availability of GPGs for mankind.

Swanson and Goschl (1999) argue that assignment of

property rights should be made at those levels in an in-

dustry structure that are effective at investing in the as-

sets concerned to ensure efficiency and equity. While such

an assignment is possible in industries like agriculture

and pharmaceuticals that depend on plant germplasm,

the authors observe that such assignments may not be

possible in the case of environment where it is difficult to

divide the resource into discrete parts that could fit into a

property rights system which results in misallocation of

property rights.

Levy and Friedman (1994) assert that the valuation of

environmental and state-owned natural resources that

are non-substitutable due to their unique attributes will

vary with the allocation of property rights. The owner of

a natural resource (say, a grassland range) would assign

a higher valuation to her property. Accordingly, valua-

tion of environmental and biodiversity resources where

property resources are ill-defined is subject to huge varia-

tions. By the above logic, the Indian state, as the owner of

all environmental resources in its territory, must assign a

higher valuation to its environmental resources relative

to market-determined rates. The studies of Rasul, Chettri,

and Sharma (2011) clearly indicate that no proper meth-

odologies and framework exist to evaluate environmen-

tal services with reference to mountain systems in India.

On the basis of empirical tests conducted on 185 coun-

tries covering the period 1990-2004, Battig and Bernauer

(2009) report that countries with democratic institutions

show a higher commitment and generate policies to re-

duce greenhouse gas (GHG) emissions as compared to

countries with other forms of political institutions. How-

ever, the researchers also report that effect of democratic

institutions on actual emission reductions of GHG is not

clear. These findings provide support to the argument,

embodied in the joint/community forest management

(JFM/CFM) programme of the Indian state, that commu-

nity involvement through the formation of democratic vil-

lage-level forest communities foster actions that enhance

the environment quality.

Tacconi (2011) argues that true Coasian transactions1 are

not applicable to the supply of environmental services

and might lead to inefficient outcomes. Tacconi contends

that if a market for environmental services is created, the

resulting allocation would be more efficient than Coasian

transactions, though such allocation may not be sustain-

able in the long run. Tacconi concludes that decisions

and actions to conserve nature cannot be made on the

basis of market-based evaluations alone but should be

guided by the human spirit which is above the economic

plane of market-determined values of environmental ser-

vices.

Abildtrup, Jensen, and Dubgaard (2009) demonstrate

through empirical studies (Danish waterworks attempt-

ing to frame cultivation agreements with local farmers)

that the Coase theorem fails when its basic assumptions

(zero transaction costs, perfect information, and maxi-

mizing behaviour) are violated. They further argue that

expropriation by the state is a much more cost-efficient

approach to protect groundwater resources and ensure

social welfare.

A broader perspective can be seen in the analysis of

Chichilnisky (1994) which considers the trade dynamics

of environmentally-intensive goods between the indus-

trialized (north) and the developing (south) countries. The

environmental resources in the south are state-owned and

hence, are common property. It is a well-known fact that

common property resources are over exploited by busi-

ness interests. In sharp contrast, Chichilnisky points out

1 Coasian transaction, embodied in the Coase theorem, is describedas follows:

Assigning property rights to individuals to pollute the environmentor not be polluted from the actions of other individuals would leadto voluntary negotiations between the concerned individuals re-sulting in efficient allocation of the resources regardless of theinitial specification of property rights (as cited in Tacconi, 2011, p.3). The role of the state is limited to the assignment of propertyrights. State intervention is required when transaction costs arehigh (Coase, 1960).

82

that the north has well-defined property rights and legal

infrastructure for regulating the use of common property

resources like sunlight and running water. She further

argues that the differential property rights regimes be-

tween the north and the south lead to a false notion that

the south possesses an over abundance of environmen-

tally-intensive resources in relation to the north leading

to extraction beyond the optimal point and exporting en-

vironmentally-intensive goods (timber and cash crops

which require clearing of tropical and temperate forests)

to the north which is not Pareto-efficient. In the Indian

context, the tropical rain forests of the western and east-

ern ghats are one such state-owned (common property)

resource that has been used as an input for the produc-

tion of timber, ayurvedic drugs, paper and minerals by

domestic and export-business interests resulting in de-

forestation and simultaneous accumulation of wealth by

a limited number of private individuals.

In the above context, Chichilnisky (1994) argues that the

basis of trade should be public comparative advantage

and public costs rather than private comparative advan-

tage and private gains. The market underestimates and

does not account for the true social cost of a common

property resource due to market failures and hence such

resources appear to be priced lower by the market. By

improving the property rights of the indigenous forest

communities, she demonstrates that the social costs of

extracting environmental resources would be factored into

the private costs resulting in higher costs of environmen-

tal input resources leading to lower comparative advan-

tage and lower exports of environmentally-intensive

goods to the north. Chichilnisky further asserts that im-

proving property rights of indigenous forest communi-

ties by providing them entitlements for land and resources

forms a good base for taxing environmental usage and

improving the income levels of the poor. She develops a

mathematical model to illustrate the above concepts but

this is not supported by empirical studies.

Based on the research evidence examined so far, the fol-

lowing is surmised:

Property rights may be considered as intermediate

public goods which are required to ensure the supply

of environmental resources like stable climate, which

is a GPG.

Democratic institutions are associated with evolution

of public policies that are favourable to sustainable

management of environmental resources.

Assigning property rights to indigenous communi-

ties helps in accounting for social costs of the environ-

mental resource.

We now examine the contours of the property rights of

forest dependent communities in the Indian context. The

recorded forest cover in India is 76.95 million hectares

which comprises 23.41 percent of the total geographic

area (Forest Survey of India, 2011). Out of the 100 million

forest dwellers in India, roughly 54 million belong to the

tribal communities. Since ~95 percent of the forests in

India are state-owned, the privileges and property rights

of forest dependent communities are linked with forest

laws and regulations formulated by the state (Kishwan et

al., 2007).

The Britishers instituted scientific administration of for-

ests during their rule by creating the Forest Department

in 1868 which was based on commercial extraction of

forest produce for export and domestic consumption. The

Britishers declared forests as state property vide the In-

dian Forest Act, 1865 and the Indian Forest Law Act VII,

1878. The forest dwelling communities were restricted to

certain pockets of the forest territories. The collection of

forest produce by forest dwelling communities and graz-

ing was regulated by the Britishers through subsequent

legislations. The Indian Forest Act, 1927 consolidated the

existing forest laws, regulated the transit of forest prod-

ucts and fixed duties leviable on timber and other forest

produce. This Act also created the Reserved Forests (a

notified area with full degree of protection where all ac-

tivities are prohibited) and Protected Forests (a noti-

fied area with limited degree of protection where activities

are permitted unless prohibited). The National Forest

Policy, 1952 declared forests as National Assets and

forcefully asserted that the interests and priorities of the

forest dwelling communities be made subservient to the

interests of the State. The National Commission on Agri-

culture, 1976 strengthened the above trend by stipulating

that industrial needs would get priority over the forest

dwelling population in the usage of forest timber. Through

the 42nd Amendment to the Constitution (1976), forests

were transferred from the State list to the Concurrent list,

which gave the Central Government a higher degree of

control in the management of forests. The Wildlife Protec-

tion Act, 1972 created the National parks and Wild-

life Sanctuaries to improve the habitat conditions and

protection of wildlife. The Forest Conservation Act, 1980

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 83

restricted the use of forest land for non-forestry purposes

and required the approval of the Central Government for

any diversion of forest land for non-forestry purposes.2

One can thus discern a progressive tightening of state

control over the management of forests and simultaneous

restriction of the rights and privileges of forest dependent

communities over the access and usage of forest land and

produce in the 19th and 20th centuries. The National

Forest Policy, 1988 reversed the above trend by according

priority to the interests and needs of the forest dependent

communities over national interests. This policy resulted

in the promulgation of the Circular on Joint Forest Man-

agement (JFM) in 1990 by the Central Government which

accorded a significant role to the forest dependent com-

munities in the management of forests and devolved rights

to forest produce.

Chakrabarti et al. (2005) trace the evolution of the involve-

ment of forest communities in the management of forests

and environmental resources by the Indian State (1990)

through the principles of co-management / JFM. As ob-

served by the researchers, the forests and other environ-

mental resources, though owned by the state, are

considered as common property resources which have

deteriorated to open access forest systems. The deteriora-

tion of forest protection in the state can be traced to insti-

tutional factors like paucity of state staff and protection

infrastructure. JFM was evolved to strengthen and supple-

ment the staff strength of the state. Property rights in the

form of limited ownership of lands in reserved forests,

protected forests, national parks and sanctuaries amount-

ing to 200-600 hectares per forest community with rights

to collect non-timber forest produce, share in harvested

timber, wage payments for protection efforts and power

to collect fines from forest offenders have been allocated

by the state to the forest dependent communities. After

ceding forest lands to forest dependent communities as

described above, the State retains ownership control over

approximately 95 percent of the forests in the country

(Sankaran, Sinha, & Madhav, 2008).

Chakrabarti et al. (2005) develop a general equilibrium

model to capture the key aspects of JFM. The model im-

plies that given the importance of caste groups in the In-

dian social hierarchy, elites in the village forest commu-

nity may capture a larger share of resources via the prop-

erty rights in the form of larger share of wage payments

and unauthorized forest resource collections. Non-elites

may be compelled to resort to illegal extraction of forest

biomass for their sustenance. Significantly, they report

considerable empirical evidence suggesting that forests

and environmental resources have been more efficiently

managed through JFM than by the Indian state using in-

dicators like resource extraction levels and distribution

of benefits amongst forest community members.

In another study that reports a puzzling development,

Chakrabarti and Datta (2009) assess the success of the

JFM in the Indian state and report that the programme

has been failing since 2000 and there has been no percep-

tible increase in afforestation rates as compared to those

in the 1990s. They suggest the development of an inte-

grated management information system (MIS) under four

visions: forestry by communities, forestry for communi-

ties, forestry with communities and community forestry,

the latter depicting the highest involvement of the forest

communities in the management of forest resources. The

study suggests that the proposed MIS should contain in-

formation about tree growth (already maintained by the

state in the form of plantation journal), shrubs, ground

flora, socio-demographic details of the village forest com-

munity, and silvicultural practices.

The State further enacted the Scheduled Tribes and Other

Traditional Forest Dwellers (Recognition of Forest Rights)

Act (TFA), 2006 with a view to accord ownership rights

over lands to forest dependent communities living in the

fringes of the forests subject to certain conditions. The

TFA accords the forest dependent communities with the

right to hold and reside in forest lands under individual

or common occupation, rights over community lands and

rights to collect, use and dispose non-timber and minor

forest produce (Gazette of India Extraordinary, 2007).

As noted by Chakrabarti and Datta (2009), this is a clear

move to improve the property rights of forest communi-

ties by the Indian state. In the above context, the proposed

MIS may also include information regarding water bod-

ies, mines and minerals as these resources attract the at-

tention of business interests.

Over the past two decades, the Indian state has taken

progressive steps to improve the property rights and en-

titlements of the forest dependent communities despite a

2 Based on the information accessed on May 3, 2012 through http://www.vanashakti.in/evolution.html and Ministry of Environmentand forests, Government of India website http://moef.nic.in/index.php#

84

clear lack of causal relation between the improvement of

property rights of forest communities and increase in for-

est cover and efficiency in the management of environ-

mental resources. The existing literature in this area offers

no explanation for this puzzling development. This pa-

per seeks to offer insights in this regard and provide some

answers to the questions (1) and (2) posed in the paper

through an analytical case study based on a social entre-

preneurship model.

Given the above fact, there is also a possibility of the In-

dian state withdrawing the property rights given to the

forest dependent communities. As reported by

Chakrabarti et al. (2005), the Chinese state has frequently

resorted to withdrawal of property rights to its forest com-

munities for non-performance and non-fulfillment of con-

tracts between the forest communities and the state. Thus,

there are precedents for withdrawal of property rights by

the state.

THE PROPOSITIONS

We believe that the Indian state has taken a correct and

progressive step in vesting property rights via JFM (1990)

and granting ownership status / titles over forest lands

to forest dependent communities via the TFA (2006). This

is not because the forest communities have shown more

efficiency in managing the forest and environmental re-

sources as reported by several empirical findings men-

tioned by Chakrabati et al. (2005). On the contrary, we

believe that the loss of forest cover and vegetation due to

browsing/grazing by fodder animal and man-made fires

to rejuvenate grass to facilitate browsing by forest depen-

dent communities for personal profit is considerable. We

formulate the research proposals as follows:

P1: Improving the property rights of forest dependent

communities enables the members to acquire aware-

ness, and education and therefore use the available

financial infrastructure more effectively to increase their

incomes from alternative livelihoods which would

lessen their dependence on forest and its resources for

their living.

P2: Increased incomes from alternative livelihoods of

the forest dependent communities are positively associ-

ated with forest cover in the state.

P3: Increased incomes from alternative livelihoods of

the forest dependent communities have a positive

association with the stock market index.

P1 and P2 seek to address question 1 while P3 addresses

question 3 posed earlier in the paper. The motivation for

the above proposals stems from the following argument:

It is our belief that the allocation of property rights to

forest dependent communities and entitlements to forest

land provides stability to the individual households in

the form of a residence and some land for cultivation and

rearing draught animals. Ownership of lands would ar-

rest migration of forest communities to nearby towns and

provide benefit from the alternative employment oppor-

tunities now made immediately accessible by other eco-

nomic forces which we explain below. This comfort is in

sharp contrast to the earlier periods where the forest de-

pendent communities were compelled to live in make-

shift semi-permanent structures liable for eviction by the

state as trespassing in the forests was considered a forest

offence punishable under the State Forest Act/s.

Public investment dwindled in the 1990s. Due to liberal-

ization and privatization reforms in 1991, private invest-

ments filled the void created by the gap in public

investments (Sarker, 2009). Agarwals (2009) findings that

the gross capital formation of the private sector as a per-

centage of GDP increased from 10.5 percent in 1990-91 to

25 percent in 2006-07 lend further support to this obser-

vation. In stark contrast, the corresponding figures for

the state are 8.6 percent and 7.4 percent respectively.

In alignment with the increased investments by the pri-

vate sector as described above, Agarwal (2009) reports an

increase in the participation of the private sector in new

sectors like road construction, electricity generation and

distribution, health, education and rural development in

the post-liberalization period. Agarwal further notes an

increase in the private sectors presence in ports and

telecom. Rajaraman and Mukhopadhyay (2007), based

on their study on the change in rural employment during

1999-2005, report a rise in rural prosperity as reflected in

the rise in monthly per capita rural expenditure.

Based on the above empirical findings, we posit that the

private sector participation in the rural economy (span-

ning information technology and services, telecommuni-

cations, infrastructure, financial, educational, and other

social services) has generated employment opportunities

in diverse sectors (like eco-tourism, horticulture, educa-

tion, catering, and other services) in the rural areas dur-

ing the post-liberalization period which would benefit

the forest dependent communities by providing alterna-

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 85

tive employment opportunities for their livelihoods.

We argue that such alternative employment opportuni-

ties shall reduce the dependence of forest dependent com-

munities on forests for their sustenance in the medium

and the long run and lead to increase in forest cover. We

also propose that, under the guidance of the state, these

factors shall enable the forest dependent communities to

effectively network with other institutions in the rural

economy, reduce the transaction costs, use the available

financial infrastructure more effectively, and increase

their incomes.

It may be tentatively inferred that increased private sector

participation in the rural economy as described above

leads to a spurt in economic activities at the hamlet and

village levels which may have a ripple effect on the

economy as a whole. This inference provides some point-

ers to the question no. 3 posed earlier in the paper. The

regional and national stock exchange indices are reason-

ably good indicators of economic activities. We now ex-

amine some evidences which link economic activities at

a regional level and the stock indices.

Padhan (2007) has conducted studies during the post

liberalization period (1991-2005) and reported that a well-

developed and mature stock market (Bombay Stock Ex-

change Sensex) would increase economic activities and

economic growth and vice versa. In these studies, Index of

Industrial Production (IIP) was used as a proxy for mea-

suring economic activity and the agricultural sector was

not considered. In a significant study, Agrawalla and

Tuteja (2007) report that improving the efficiency and di-

versity of Indian stock markets in the current time period

would result in increased economic growth (measured

by IIP) in the future time periods. The researchers further

report that development of the stock market would result

in the development of the banking sector and have con-

cluded that stock markets and banks are complementary

financial services that improve economic growth in the

long run. In a related study, Reddy and Sebastin (2009)

report that the Indian stock market and commodities

market (which trades in derivatives based on oilseeds,

food grains, vegetable oils, spices and bullion) indices

are dependent and hence, move together.

We can thus infer that, in general, economic activities are

positively associated with the stock market index. In-

creased private sector participation in the rural economy

and the connected increase in economic activities can thus

be positively associated with the stock market index.

We finally posit that private sector participation in the

rural economy spanning infrastructure, financial, edu-

cational and other services would strengthen the finan-

cial infrastructure resulting in access to cheap credit,

innovative insurance products, and rural finance schemes

which has the potential to increase the income levels of

forest dependent communities.

THE PROPOSED MODEL

We believe that the housing and land assets accrued via

property rights, in conjunction with the employment op-

portunities provided by a booming economy in the post-

liberalization period offer alternative livelihoods that

would gradually lessen the dependence of these commu-

nities on forests for their food and sustenance and im-

prove their education, health and nutrition levels and

their general standard of living in the long run.

Following Chichilnisky (1994), it can be argued that im-

provement in property rights of forest dependent com-

munities would enable the correct estimation of the social

cost and price of an environmental resource. Without prop-

erty rights, the common property resources of the Indian

state were priced only on the basis of private cost as the

social costs were not considered. Inclusion of social costs

would increase the price of environmental resource (lease

rent of forest land for mining, water and so forth) that

would deter vested business interests from unjust profi-

teering.

A general multiple regression model, by regressing an-

nual per capita income of forest community member on

annual insurance premium, thrift per self-help group

member, education, availed bank loan, area of forest al-

lotted to the forest community and stock index, is pro-

posed to test the research proposals (P1, P2 and P3).

The variables Insurance premium/year and Availed

bank loan seek to measure the strength of financial in-

frastructure in social rubric of forest dependent commu-

nities. Availability of insurance products and banking

services near the habitations of forest dependent commu-

nities is perceived as an indicator of the spread of finan-

cial infrastructure. Education and Thrift / self help

group number seek to measure the social capital that

would enable members of the forest dependent commu-

nity members to use the financial infrastructure effectively.

86

THE SOCIAL ENTREPRENEURSHIP VENTURE INANDHRA PRADESH3

The main arguments of the research proposals are now

illustrated through a case study of forest dependent com-

munities based in the state of Andhra Pradesh (AP), In-

dia.

The Geography

AP is endowed with rich forests which support a wide

diversity of flora and fauna. Of the total geographical area

of 2,75,068 sq. kms in the State, the forests comprises 63,814

sq. kms (23.2 percent). The state can be geographically

divided into Coastal, Rayalaseema and Telangana re-

gions. Refer to Table 1. The Telangana and Coastal re-

gions are endowed with river systems (Godavari and

Krishna) and rainfall which contribute to rich biodiver-

sity. In contrast, Rayalaseema region, comprising of

Kadapa, Chittoor, Anantapur and Kurnool districts, is

subject to prolonged summers, where the average tem-

perature ranges 41-48 degrees celcius. Rainfall is scanty

in Rayalaseema, averaging 60-90 cms (Andhra Pradesh

State of Forest Report, 2010; Reddy, 1987).

The forest vegetation in Rayalaseema (Reddy, 1987) largely

comprises dry deciduous type with scattered occurrences

of Teak (Tectona grandis), Terminalia spp, Dalbergia spp,

Pterocarpus santalinus, and Anogeissus spp. Rayalaseema

forests contain rare and endemic plants (Cycas beddomei,

Terminalia pallida, Syzygium alternifolium, Shorea talura,

Shorea tumburgia, and Psilotum nudam) and endemic, en-

dangered fauna ( Jerdouns Courser, Golden Gecko, Star-

backed tortoise, and Slender Loris).

Administration of Forests by the Government Organizational Structure

The Principal Chief Conservator of Forests (PCCF) is the

Head of Andhra Pradesh Forest Department (APFD). The

Chief/Conservators of Forests (C/CFs) hold administra-

tive charge of territorial forest circles comprising two or

more districts. The Divisional/District Forest Officers

(DFO), functioning under the jurisdiction of C/CFs, are

responsible for the management and protection of forests

situated in their division/district. The DFO is assisted by

the Forest Range Officer (FRO) at the Range level and the

Forest Section Officer (FSO) at the Section level. The For-

est Beat Officer (FBO), assisted by the Assistant Beat Of-

ficer (ABO) is in-charge of the Forest Beat, the basic

administrative unit in APFD. As on May 31, 2008, APFD

employed 9,672 officers for the protection, regeneration,

and maintenance of forests in the State.

The executive officers of APFD are empowered to take

cognizance, register offences, and initiate penal action

for forest offences which include theft of forest produce,

damage to forests and forest boundaries, encroachments,

destruction of forest property, and poaching under the

following Central and State Forest Acts:

1) The Forest Conservation Act, 1980

2) The Wildlife Protection Act, 1972

3) The AP Forest Act, 1967

4) The AP sandal wood and red sanders wood transit

Rules, 1969

5) The AP Saw mill (Regulation) Rules, 19694

Vana Samrakshana Samithi (VSS)

In response to the National Forest Policy, 1988 and the

Circular on JFM issued by the Central Government (1990),

APFD constituted Village Forest Communities, termed as

Vana Samrakshana Samithis (VSS), comprising family

units of forest dependent communities, with a view to

involving these communities in protection and produc-

tion forestry activities (1992). The VSS, which is basically

a community-based self-help group (rural local body)

derives its spirit and inspiration from the Constitutional

(73rd Amendment) Act, 1992 (Thomas, 2003). While com-

munity participation has been successful in the resource-

rich Telangana and Coastal regions, Rayalaseema poses

a distinct challenge to the efforts of APFD in this regard

due to its economic backwardness, scarce natural re-

sources, and harsh climatic conditions.

In 2002, the Government of Andhra Pradesh adopted

Community Forest Management (CFM), an advancement

over JFM, which involved more devolution of powers and

property rights to the VSS in the management of its activi-

3 This case study, based on records from the Offices of DivisionalForest Officer, Wildlife Divisions, Rajampet and Kadapa, Govern-ment of Andhra Pradesh, India is adapted from the essay Alterna-tive livelihood programmes for village forest communities (VanaSamrakshana Samithis) through sustainable management of natu-ral resources in the Rayalaseema region of Andhra Pradesh writ-ten by this author and submitted as an entry to the Indian Instituteof Management Bangalore Management Review (IMR) StudentEssay Competition.

4 Records from the Office of the Divisional Forest Officer, WildlifeDivision, Rajampet, Government of Andhra Pradesh, India.

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 87

ties. While the VSS was responsible for protection and

management of forests under its charge, it was also ex-

pected to provide assistance to APFD in protection of the

remaining forests. The VSS was entitled to all the benefits

accruing from forests managed by it. In respect of planta-

tions, the VSS received benefits in proportion to the pe-

riod of management of plantation. Viewed from a legal

perspective, the VSS members performing these wage-re-

lated and asset-creation works are regarded as forest

workers who derive their basic sustenance and liveli-

hood from forest produce. In this paper, we define forest

workers as follows (Roy-Burman, 1998):

a) Full time or part time wage labour employed by the

Forest Department, Corporations, Co-operatives and

ancillary bodies operating in forestry sectors as well

as by contractors and lessees operating in this sector

on the rights directly or indirectly obtained from the

concerned Forest Department

b) Artisans and craftsmen dependent on forest produce

c) Hunters fully or partly deriving livelihood (in the form

of direct consumption, local barter, and wider com-

mercial linkage) by hunting including trapping birds

and animals whose normal habitats are in the forest

d) Extractors of grass, bamboo, logs and timbers as head

loads for personal use or local sales

e) Gatherers of non-wood forest products

f) Practitioners and users of herbal medicine system

g) Slash and burn cultivators and upland cultivators

who depend on forest primarily to sustain their tradi-

tional subsistence economy

h) Farmers, particularly belonging to tribal communities

whose economy is by and large a subsistence eco-

nomy, which is to a considerable extent dependent on

forest ecology or changes in forest ecology

i) Participants in social forestry programmes (other than

recreational forestry), including JFM primarily for meet-

ing basic consumption needs or for creating social

infrastructure specially meant to serve the vulnerable

sections of the society

k) Population below the poverty line in any category of

forest.

A distinctive feature of the CFM over JFM was the active

involvement of the VSS members, especially women, in

the preparation of management plans and other activi-

ties of the forests vested under the control of the VSS. In

alignment with the improved property rights, the VSSs

were entitled to a portion of the penalties collected for

violations of forest laws in VSS-controlled forests.

There are 7,718 VSSs in AP actively involved in the pro-

tection and development of forests. These VSSs are man-

aging 15,199.8 sq. kms of forest area, constituting 23.8

percent of the forest area in the State. A total of 15.39 lakh

members are involved out of which 3.23 lakh belong to

the Scheduled Caste and 4.65 lakh to Scheduled Tribe

communities.

The VSSs are funded by the World Bank (APCFM project

2002-07: 5000 VSS), Government of India (Forest Devel-

opment Agency 2002-07: 1288 VSS) and NABARD (Ru-

ral Infrastructure Development Fund schemes: 2055 VSS)

(Andhra Pradesh State of Forest Report, 2010). Refer to

Table 2 for budgetary allocation details under the above

schemes.

Structure of the VSS

The VSS consists of all adult members of concerned com-

munities as its members. The APFD is represented by the

DFO who typically administers 100-200 VSSs. Each VSS

elects one president, one vice-president (one of who must

be a woman) and thirteen other members of whom at least

seven shall be women. Elections are conducted in the pres-

ence of the FRO who enlists the support of local NGOs

and gram panchayat to ensure transparent election pro-

cesses. After the elections, the name of the VSS, details of

the president and vice-president, and the members of the

VSS are registered in the office of the DFO. The DFO then

appoints FRO/FSO/FBO as the member-secretary of the

VSS. Through this administrative structure, APFD imple-

ments development schemes for the VSS financed by Gov-

ernment, World Bank and other lending agencies. The

funds from the various lending agencies are deposited in

a joint bank account operated by the VSS functionaries

and DFO. The APFD provides guidance to the VSS for all

the silvicultural operations proposed to be undertaken in

the forest unit.5

The Social Entrepreneurship Model

The social entrepreneurship model seeks to develop em-

ployment and alternative livelihood opportunities for the

members of VSS by involving them in the manufacturing

of eco-friendly paper from forest grass, an economically

5 Records from the Office of the Divisional Forest Officer, WildlifeDivision, Rajampet, Kadapa district, Government of AndhraPradesh, India.

88

insignificant but an abundant natural resource. It is pro-

posed that the paper will be converted into covers and

sold to Tirumala Tirupati Devasthanams, Tirupati (TTD),

the world famous shrine in Tirupati, for packaging the

prasadam. Besides creating employment opportunities forthe members of VSS, the venture ensures positive contri-

bution to biodiversity conservation and fosters beneficial

business associations between the VSS, the TTD, and the

Government.

Product Overview

The product envisaged is rectangular or square paper

covers of various sizes made from pulp of boda (Cymbopo-

gon coloratus), a forest grass, which grows in profusion

over 10,00,000 ha of forests in the Rayalaseema region.

APFD classifies boda grass as a non-nationalized non-

timber forest product (NTFP) whose trade is not regu-

lated by the Government (Sankaran et al., 2008). NTFP is

defined as a product of biological origin other than wood

and derived from forests, wooded land or trees outside

the forests and gathered from wild or produced in forest

plantations (Thadani, 2001; FAO, 1999).

The four districts have 800 plus VSSs with a forest com-

munity population of 132,100 who will be the direct ben-

eficiaries of the project. The VSS members shall be involved

in the cutting, transportation, and storing of boda grass

from forests. The removal of boda grass from the forests

does not constitute a forest offence as the VSSs are legally

entitled to remove and consume boda grass and other

NTFPs for their domestic uses or sell in the local markets

vide the relevant provisions of the Andhra Pradesh For-

est Act, 1967 and government orders relating to the JFM

and CFM programmes. The TFA also accords the VSS

rights over NTFPs collected from forests and forest plan-

tations. The machinery plants, which will process boda

and other raw materials to produce paper, will be in-

stalled in select locations and will be operated by these

VSSs.

Manufacturing Operations

Boda grass shoots are cut into shreds and mixed with

hosiery shreds to form a pulp, washed with suitable al-

kali, and subject to beating which renders the pulp ame-

nable for pressing into sheets. The resultant pile of boda

pulp sheets are squeezed and dried under the sun for

removing excess water. Finally, the dried sheets are passed

through calendar rolls to smoothen uneven surfaces after

which the sheets are cut to suitable sizes. The square/

rectangular paper sheets are now converted to covers

using glue. Appropriate holes are punched for provision

of twains for ease of carriage. (List of manufacturers of

paper manufacturing units in India and the details of

plant and machinery required for a single unit, as reported

by Kumarappa National Handmade Paper Institute,

Sanghaner, Jaipur (KNHPI) are enclosed as Annexures 1

and 2).

Risk Factors in Execution6

1. Power requirements per unit could be in the range 40-

45 HP. Water is required to wash the alkali off the

boda pulp during the manufacturing process. Further,

the plant has to be installed in a secure place. The

above issues can be addressed by installing the paper

plant in the forest nurseries. Forest nurseries are con-

trolled and maintained presently by APFD for raising

seedlings of appropriate varieties in each mandal or

subdivision. Nurseries with power and water supply

facilities are located at Kadapa, Chittoor, Tirupati and

Pullampet. The VSS is not legally entitled to use forest

nurseries and other resources owned/controlled by

APFD. In its role as facilitator for VSS development,

the APFD has traditionally allowed the VSS unfettered

access and usage of all the resources under its owner-

ship and control, including forest nurseries and plan-

tations.

2. Boda shoots are consumed by goats when young and

tender. However, as they grow, the panicles grow

bushy which makes them inedible. Moreover, the grass

is a primary fire incendiary. The best season to collect

boda grass is when they have attained maximum

growth and thus pose a fire hazard. After observing

the yearly growth and maturity patterns of boda grass,

it is concluded that the best season to cut, collect, and

store boda grass is immediately after Makar Sankranti,

i.e., around the second week of January. The collec-

tion should be expedited by February. On an average,

one hectare of forest area yields 70 kgs of grass, and

hence 700,00,000 kgs of boda grass are available every

year for the project. Yearly requirement for the above

project is (250 kgs per day x 250 days per year x 18

units =) 11,25,000 kgs. The grass rejuvenates every

year. The grass required for the annual operations are

6 Ibid.

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 89

collected during this period and stocked in the forest

nurseries.

3. Suitable youths, preferably those who have attained

literacy, and local NGOs will be selected from the VSSs

and sent to KNHPI for training. Such trainings are

necessary during the initial phases and would be

sponsored by APFD. Around twenty persons are re-

quired to run a unit in its entirety. APFD and the VSS

are already engaging the services and support of local

NGOs for book-keeping and accounts maintenance of

various forestry schemes implemented in the VSS. This

structure will also help the VSS in maintaining the

accounts for this project at various levels including

boda grass stocking points and nurseries.

4. Value additions are required to convert the pressed

handmade raw papers to suitable covers/envelopes.

Waxing, adding laces, and ring bushes enhance the

utility of the product. Such value additions are not

possible by VSS members with their existing level of

skills. It is thereby proposed to involve the Self Help

Groups (SHG) presently functioning in the gram

panchayats in the value addition processes.

5. KNHPI shall be entrusted with the task of installing

the machinery required for the paper plant in the pro-

posed sites in AP.

6. Hosiery cotton rags are required to strengthen the boda

grass pulp. For the supply of rags on a continuous

basis, the VSSs can enter into an arrangement with

textile mills in nearby towns like Nagiri and Puthur,

Chittoor district.

7. There is a possibility of some pollution effects near the

paper manufacturing units as alkali is being used to

wash the pulp. The excess alkali-laden water can be

collected in a nearby pit or drum near the plant itself,

on a daily basis. This impure mass can be treated with

suitable dilute acid (like hydro chloric acid) which

will neutralize the base. The standing impurities can

be precipitated by using small quantities of alum. The

relatively unpolluted water can then be released or

put to suitable domestic uses.

Benefits of the Product

1. TTD temples are situated in Tirumala hills amidst the

forests of Sri Venkateshwara National Park (SVNP),

an ecologically fragile eco zone which contains vast

swathes of economically valuable Red sanders timber

forests and other valuable endemic flora. Boda is a

natural associate of Red sanders and is a prime incen-

diary for forest fires. To combat this problem, APFD

annually incurs expenditure averaging ` 45 lakh in

each district to remove boda from forests.7 During

uprootal operations, the root systems are also de-

stroyed to prevent boda regeneration which disturbs

the top soil causing soil and moisture erosion. The

stateapproved management or working plans of the

district forests vests APFD with the legal authority to

undertake appropriate silvicultural operations (which

include uprootal of dry grass, periodic burning, soil

binding operations and so forth) to prevent the forests

under its control from natural and anthropogenic dam-

age. Such silvicultural operations derived from the

management or working plan, when undertaken by

the VSS under the guidance of APFD, are necessary

for the health and development of forests. Hence, they

do not constitute a violation of the Forest Conserva-

tion Act, 1980. Presently, TTD is using plastic covers

for packaging prasadam of the Lord which has resulted

in littering of plastic in SVNP forests. Frequently deer,

sambar and other ungulates ingest the plastic covers

along with natural food which results in choking and

death. During forest fires in summer, the plastic cov-

ers strewn by tourists and pilgrims get burnt along

with forest litter in the hill zone which pollute the

atmosphere. Following the spirit and provisions of

the Wildlife Protection Act, 1972, the judiciary had

issued directions to TTD to ensure a ban on the use of

plastic covers/articles in the Tirumala Tirupati hill

zone, which harbours rich biodiversity and is home

to many endangered species (Slender loris, Cycas

beddomei). The proposed use of grass-based paper

cover, in place of plastic covers, will address this prob-

lem.8

2. In the manufacturing processes of boda based paper,

only the shoots of boda grass are used for extracting

pulp, while the roots, which are excellent soil binders,

are left undisturbed as the future plant stock. Hence,

soil erosion is minimized.

3. Cutting, transportation, storage, and collection of boda

7 Ibid.8 Records from the Office of Sri Venkateshawara Zoological Park,

Government of Andhra Pradesh, Tirupati, India.

90

grass provide employment opportunities to the VSS

in these districts. The wage rates for these operations

are based on the notification by the respective district

collectors in accordance with the provisions of the

Minimum Wages Act, 1948 and its subsequent amend-

ments. Further, the forests contain valuable red sand-

ers timber species which are prone to smuggling in

view of the enormous demand for its timber in Japan

and China. Red sanders grow on hill slopes in the

remote forests. Smugglers and poachers use this iso-

lation to their advantage and wreak havoc on the

biodiversity by resorting to massive felling of these

trees to smuggle timber. APFD is faced with an uphill

situation in view of insufficient staff and moderate

infrastructure. Movement of people and labour in these

forests to harvest boda grass would aid APFD in check-

ing the smuggling activities described above.

Value Proposition

TTD has evinced keen interest in purchasing the above

product as the use of grass-based paper covers ensures

compliance with legal statutes. By promoting the use of

an eco-friendly product manufactured by involving VSSs,

TTD stands to gain enormous social and political ben-

efits. The competitive advantage, under the present cir-

cumstances, is that the product is eco-friendly and has

an ethnic origin.9 TTD is a semi-autonomous government

institution and would prefer to do business which will

provide livelihood opportunities to VSS. The state-run

KNHPI had conducted detailed tests on boda grass and

reported that the grass was a suitable raw material for

manufacturing paper. The paper can also be converted

into other products like file covers, greeting cards, moon

rock paper, marble paper and folders which can be sold

through the state handicraft emporiums.10

The economic value of the social entrepreneurship ven-

ture is based on the report furnished by KNHPI and cur-

rent market rates of various raw materials used in

manufacturing the eco-friendly paper. One unit can pro-

duce 200 kgs of paper per day, equivalent to 4,000 covers

(size: 12 x 5 x 3 as required by TTD). In over 250 work-

ing days in a year, one unit can produce 1,000,000 covers.

Cost of each cover is estimated at ` 2.09 and is proposed

to be sold to TTD at ` 2.70. Revenue per unit per year is (`

2.70 per cover x 1,000,000 =) ` 27,00,000. Variable and

fixed costs per unit per year are ` 15,18,750 and ` 5,75,500

respectively.

Net profit per unit per year is ` 4,24,025 after tax and

interest deductions. Break-even occurs at the sale of

4,87,196 covers per unit after 0.49 years. There is a need

for eighteen such units to meet the demand of 18,000,000

covers per year by TTD temples. Refer to Annexure 3 -

Financial Analysis for details.

Market Analysis

TTD attracts pilgrims and tourists from all over the world,

cutting across caste and religion and averaging 3,50,000

every week. Every devotee/ pilgrim/ tourist who visits

TTD would want to consume prasadam and carry it home

and hence, is a customer. The annual requirement for TTD

is estimated at 18,000,000 paper covers. The VSS can ac-

cess customers through TTD. Each paper cover can con-

tain 4-8 laddus or 3 vadas.

There is also scope for selling the hand-made paper prod-

ucts through the state emporium outlets like Cauvery

(Karnataka) and Lepakshi (AP).

Financial Planning

An investment of `36,00,000 per unit is required for ini-

tial start up. ` 15,00,000 per unit is required for procuring

and installing plant and machinery. The balance of

`21,00,000 per unit is required for various operating ex-

penses like procurement of boda grass, hosiery rags,

chemicals and so on. A minimum of 18 such units are

required to satisfy the demand by TTD necessitating an

investment of `6,48,00,000. Two alternative approaches

are proposed for the execution of the above project:

1) The government and TTD can finance the venture as a

one-time grant or a loan to the concerned VSS at low

rates of interest.

2) The VSS can raise loans from the interested parties in

the corporate sector for the venture.

In Approach (1) the promoters of the venture would be

the government and TTD, the latter being the major client

for the product. The government and/or TTD would fully

fund the project as a one-time grant or a loan with low

rates of interest. The assets created would be under the

ownership of the concerned VSS and the profits would

9 Records from the Office of the Executive Officer, Tirumala TirupatiDevasthanams, Government of Andhra Pradesh, Tirupati, India.

10 Records from the Office of the State Silviculturist, BiotechnologyResearch Centre, Government of Andhra Pradesh, Tirupati, India.

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 91

accrue to the VSS. Yearly interest payments, if applicable,

would be paid from the revenue accruals to the Govern-

ment and /or TTD.

Approach (2) envisages participation of the corporate

sector as a major stakeholder in a tripartite arrangement

between the Government, VSS, and the corporate entity.

The VSSs will retain the ownership rights of the assets.

The corporate entity would invest whole or in part and

would be entitled to interest (20%) and principal repay-

ment from the share in the net profits of ` 4,24,025 per unit

per year earned by the VSS. The payback period is calcu-

lated at 14.43 years. The NPV of the project is estimated at

`100,53,750 assuming an interest rate of 20 percent in

view of the moderate risks involved in the project.

Scalability

Many species of coarse grass, similar to Boda grass, oc-

cur in the revenue lands and non-forest areas of the state.

Using non-forest grass as raw material for eco-friendly

paper would further reduce the dependence of forest com-

munities on boda grass occurring in forests. These grasses

could also be sent to KNHPI to determine their strength

and applicability for making paper. If suitable, similar

activities for manufacturing paper can be envisaged by

village forest communities present in the various states of

India. Finding steady customers, in case of paper covers,

would pose a minor challenge to village forest communi-

ties outside AP in view of the relatively high prices per

unit of grass-based covers vis--vis plastic polythene cov-

ers.

The state has approved the entrepreneurship model de-

scribed above and have provided the required financial

assistance. A pilot paper unit has been installed in

Kadapa distict with the technical assistance of KNHPI

(2009-10).11 The forest dependent communities of the dis-

trict have benefited from the alternative livelihood and

employment opportunities accorded by the project.

As can be noted in the above model, the improvement of

property rights by the State has enabled the forest depen-

dent communities to harvest boda grass occurring in the

forests for manufacturing eco-friendly paper which pro-

vides alternative sources of livelihood to these communi-

ties. The removal of boda grass may also prevent forest

fires which adversely affect forest vegetation. The model

further envisages active participation by the private sec-

tor. Social entrepreneurship via improved property rights

as described above has thus enabled the forest communi-

ties to enter into cooperative arrangements with other

stakeholders to explore opportunities for alternative

sources of income. Such interactions and exchange of in-

formation with the outside environment would increase

the awareness and education levels of forest dependent

communities which would enable them to effectively use

the financial infrastructure to attain a higher standard of

living.

DISCUSSION

Stakeholder Cooperation

The Entrepreneurship Model seeks to establish a com-

petitive advantage by drawing on the strengths of each of

the stakeholders (the state represented by the APFD, the

forest dependent communities, and the TTD) and ex-

changing information for the successful management of

the venture. Turnbull (1997) emphasizes such stakeholder

cooperation for developing competitive advantage and

self-regulation among key stakeholders by analysing the

Japanese keiretsu and cooperatives in Mondragon, Spain

and asserts that self regulation would minimize the costs

of regulation. In the context of the social entrepreneur-

ship model described above, we believe that providing

more education and financial infrastructure in the form

of thrift groups, accounting knowledge, and insurance

services would enable the forest dependent communities

to self-regulate their activities.

In addition, the social entrepreneurship model also en-

visages sharing benefits with the private sector who might

be interested in participating in the venture. There is also

the possibility of misuse of the costly equipment and un-

der-reporting by either party to the contract in the above

scenario. Such types of transaction costs have been

pointed out by Datta and Nugent (1989) in their general

analysis of transaction cost economics that suggested

long-term lease contracts to reduce such costs. Such spe-

cific economic and financial instruments need to be de-

signed appropriately to address the issues in the model.

Transaction Costs

Considering each transaction as a basic unit of analysis

in the proposed model, we draw on the study of Datta,11 Records from the Office of the Divisional Forest Officer, Wildlife

Division, Kadapa District, Government of Andhra Pradesh, India.

92

Sen, and Gupta (1994) to describe the sources of transac-

tion costs and a suitable model to prescribe a governance

structure for smoothening of the economic relations be-

tween the stakeholders involved in the above set of eco-

nomic transactions. Datta, Sen, and Gupta have identified

three components which give rise to transaction costs:

bounded rationality, opportunism, and asset-specificity.

The case study described here highlights that ex ante trans-

action costs may not be as high as ex post transaction

costs. The ex post transaction costs (monitoring costs and

costs of operating the governance structure) between the

federation of forest dependent communities, the state, and

the private sector may be high.

The resource-dependence perspective may be appropri-

ate here as the forest dependent communities control ac-

cess to crucial raw materials like boda forest grass and

labour. According to the Swedish School of thought/

Uppsala network, markets are looked upon as a network

and firms are interdependent upon each other for gain-

ing access to resources (Datta et al., 1994).

Applying the above framework to the entrepreneurship

model, one can visualize that coordination between the

TTD, forest communities, and the State can be achieved

and fostered through specific long-term cordial relation-

ships which can accelerate information exchange, reduce

transaction costs, provide an indirect form of control, and

provide opportunities for beneficial exchanges with other

firms and organizations (as in other famous temples

which might evince interest in using the eco-friendly pa-

per bags). Further, goal attainment cannot be measured

precisely in this Entrepreneurship Model as its success is

defined by relatively intangible social objectives like alle-

viation of poverty, developing social capital, and improv-

ing the standard of living of forest communities besides

tangible parameters like profit after tax and revenue ac-

cruals. As highlighted by Datta et al. (1994), the premise

control based on autonomy, goodwill, and trust might

be the appropriate type of control structure for the above

model.

Governance Structures

The Entrepreneurship Model described above is not a

state-owned public enterprise. Nor is it a proprietorship

managed by a single owner or entrepreneur. The Entre-

preneurship Model discussed here strives to maximize

its profits and hence, it is not a non-profit organization

either. The Model cannot be described as a mutually-

owned workers cooperative as members of VSS cannot

claim ownership rights over the plant and machinery,

work sites, boda grass, other raw materials or the manu-

factured paper.

The model can be described as a cooperative organiza-

tion owned and run by a federation of forest communi-

ties. There are no managers appointed to oversee and

monitor the operation of this organization. The model

does not operate under perfect competition either. Under

the above constraints, it is not possible to precisely deter-

mine its boundaries.

We analyse the above model in the perspective of the

modern theory of the firm as described by Spulber (2009).

Spulber defines a firm as an institution that enters into

transactions and whose goals and objectives are differ-

ent from the objectives of its owners. According to Spulber,

this separation of goals is the most important character-

istic that differentiates a firm and direct exchange between

consumers. This separation of objectives from the owners

and the firm is embodied in the famous Fisher Separa-

tion Theorem. Spulber argues that firms are the most

efficient forms of organization. The Entrepreneurship

Model depicted herein clearly does not fulfill the Spulber

criterion and hence does not qualify to be classified as a

firm when analysed in the above perspective (Spulber,

2009).

However, the Entrepreneurship Model has been viable

and has performed well as on date. Given the set of con-

straints with reference to property rights of forests, no

other form of organization has been found to be work-

able.

As pointed out by Hart (2011), many natural firms like

Microsoft and Google also fail the Spulber criterion. The

intellectual and logical deficiency of the Spulber criterion

as described above needs to be reconciled. A step in this

direction has been initiated by modern researchers who

derive the behaviour of organizations from fundamental

features like administrative rules, governance structures,

and employee incentives and not from the stated objec-

tives of the firm (Hart, 2011).

Social Implications

The Entrepreneurship Model described above, seeking to

maximize the benefits accruing from improved property

rights to the forest dependent communities, may have

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VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 93

further social implications. The benefits of the entrepre-

neurship project (continuous wage employment, oppor-

tunities for training in paper making, accountancy and

book-keeping, education) would be good encouragement

for the VSS in other districts to emulate the project. In-

crease in incomes of the VSS members involved in the

entrepreneurship project would improve their standard

of living and arrest migration to urban centres for search-

ing jobs during the lean agricultural/forestry seasons.

More important, the marginal productivity of labour in

agriculture/forestry will rise.

Generally speaking, improvement in property rights of

the forest dependent communities would increase the

social capital in the long run as indicated in the Entrepre-

neurship Model. On the negative side, attempts to im-

prove the property rights of forest dependent communities

might result in social tensions. The implementation of

TFA in the Indian context is a good example to illustrate

these negative social effects. There would be a tendency

for vested interests (posing as forest dwellers) to lay false

claims of ownership and rights over forest land under

TFA resulting in wasteful litigation and sabotage which

might violate the spirit of TFA.

To claim rights under TFA, the individual must prima-

rily reside in forests, depend on forests for a livelihood,

belong to scheduled tribe, or must have been a resident in

forests for seventy-five years in case the individual does

not belong to the Scheduled Tribe category (Gazette of

India Extraordinary, 2007); claims of ownership over for-

est land is limited to those lands farmed by forest dwell-

ers as on December 31, 2005, subject to a maximum of 4

hectares per family.

Outside interference by local politicians and caste groups

to support the vested interests can complicate the issue

and victimize the forest dependent communities. The state

has to initiate measures to protect the forest communities

from such events.

Political Implications

Improving property rights of forest dependent communi-

ties leading to title and usage rights may result in the

formation of a landed class in the Indian rural fabric. A

sizeable section of the forest dependent population has

remained outside the political mainstream in view of the

geographical inaccessibility of the forests and their mi-

gratory life style. Granting property rights to the forest

dependent communities leading to the formation of a

landed class may result in drawing this marginalized

section of the population into mainstream politics result-

ing in heightened awareness of their rights and privi-

leges and participation in mainstream politics.

The state needs to initiate action to improve the educa-

tion levels of the forest dependent population through

adult literacy campaigns for ensuring effective and mean-

ingful political participation. There is a probability that

the gullible forest dependent communities, lacking proper

education and awareness but now enriched with prop-

erty rights and titles, may fall prey to the vested political

interests.

Legal Implications

In vesting individual and communal property titles over

forest lands to the forest dependent population, a legal

problem may precipitate. Usage rights over NTFP by the

forest dependent communities do not present legal issues

as the status of the assigned forest land is treated as for-

est land in the land records. However, the forest lands

over which titles are awarded to forest dwellers are typi-

cal habitats of forest fauna whose eviction or transloca-

tion is not possible. In the Indian context, the management

and protection of forest fauna is governed by the Wildlife

Conservation Act, 1972 and the Forest Conservation Act,

1980. It must also be noted that the meaning of forest

has been broadened to be understood in accordance with

the dictionary meaning irrespective of the nature of own-

ership and classification in the land records as ordered

by the Honourable Supreme Court of India in the T. N.

Godavarman Thirumulpad vs Union of India and others

(1996) case12. There is considerable ambiguity and con-

fusion amongst the regulatory authorities in the applica-

tion of Wildlife Conservation Act, 1972 and Forest

Conservation Act, 1980 for wildlife offences committed

in the forest lands assigned to forest dependent commu-

nities under TFA. There is a need for the state to clarify

the above legal issue.

Managerial Implications

Considerable responsibility and commitment is required

on the part of government officers in the lower, middle,

and top levels of forest, tribal affairs, and general admin-

12 Based on information accessed on May 26, 2012 through http://www.doccentre.net/docsweb/adivasis_&_forests/godavarman.htm

94

istration departments vested with the duty of improving

the property rights of forest dependent communities. A

change in managerial mindset is necessary in order to

regard the forest dependent communities as equal part-

ners in the growth and developmental process. Such atti-

tudinal changes amongst the managerial class can be

wrought through suitable cross-cultural training mod-

ules with a focus on mutual appreciation of different cul-

tures and society.

CONCLUSIONS AND DIRECTIONS FORFURTHER RESEARCH

It is not sufficient to improve the property rights over us-

age of NTFPs and grant titles over forest lands of the for-

est dependent communities. The State has to take

simultaneous initiatives to improve their education and

awareness levels to enable them to effectively benefit from

the assigned property rights. The Social Entrepreneur-

ship Venture in Andhra Pradesh describes how the VSS

members, under the guidance of APFD, can organize them-

selves and through stakeholder cooperation and network-

ing, create alternative livelihood opportunities and

profitable ventures using forest resources that have

miniscule economic value. It can thus be concluded that

improving the property rights of the forest dependent

communities, duly supplemented with education, would

enhance labour productivity, and social and human capi-

tal in the medium and long run. With the rise in their

incomes and standard of living due to improved prop-

erty rights, the forest dependent communities can be ex-

pected to actively and meaningfully participate in the

mainstream politics and economic development processes

of the state. The political, social, and legal issues that

may arise in the process of improving the property rights

of forest dependent communities have been described and

possible solutions have been spelt out.

An obvious limitation of the paper is that it seeks to de-

velop the theory without empirical support. The theory

would hopefully augment the existing knowledge in

property rights studies of forest dependent communities

in the Indian context.

We believe that all the proposals offered in the paper

would be empirically supported. The Entrepreneurship

Model discussed provides some affirmative answers to

the questions 1 and 2 posed in the paper. The paper also

attempts to identify the determinants of the income of the

elusive forest dependent communities in the contempo-

rary Indian context. Not too many empirical studies are

available in this area. In view of the inaccessibility of for-

est dependent communities and their present exclusion

from the mainstream, it would be difficult to obtain reli-

able and relevant data to empirically test the research

proposals.

Further, the TFA, enacted by the state of Andhra Pradesh

in 2006, which envisages vesting of ownership rights over

forest land to forest dependent communities, is presently

under implementation. The resulting social and economic

activities would hopefully generate reliable data on the

socio-economic variables of this elusive demographic sec-

tor. Future research may use this data to test the research

proposals presented in the paper and assess the impact

of the improvement in property rights on the standards of

living of the forest dependent communities. These em-

pirical results would also provide some tentative answers

to question 3 posed in this paper. Further research can

also identify more determinants which may help policy

makers to draw suitable strategies to improve the living

conditions of forest dependent communities.

AN ANALYSIS OF THE PROPERTY RIGHTS OF FOREST DEPENDENT COMMUNITIES...

VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 95

Table 113: District-wise Distribution of Geographical and Forest Areas with Population Percentage and Per CapitaForest Areas in AP

No. District Geographical Forest Forest Population Percentage Percentage Per CapitaArea Block Area in Lakhs of Forest Area of District-wise Forest(Sq. Kms) Number (Sq. Kms) 2001 to the Total Forest Area to Areas (ha)

census Geographical Total ForestArea Area in AP

Telangana

1. Adilabad 16,128 235 7,231.89 24.79 44.8 11.32 0.35

2. Nizamabad 7,956 189 1,812.15 23.43 22.6 2.84 0.09

3. Medak 9,699 233 905.94 26.62 9.4 1.42 0.04

4. Rangareddy 7,493 127 730.75 35.07 9.7 1.15 0.03

5. Hyderabad 217 - - 36.86 - - -

6. Mahabubnagar 18,432 86 3,032.51 35.07 16.5 4.75 0.10

7. Nalgonda 14,240 26 836.93 32.38 5.9 1.31 0.03

8. Karimnagar 11,823 201 2,554.86 34.77 21.6 4.00 0.08

9. Warangal 12,846 112 3,713.14 32.31 28.8 5.82 0.13

10. Khammam 16,029 356 8,436.94 25.67 52.6 13.52 0.38

Total 1,14,863 155 29,242.08 306.97 25.46 45.82 0.11

Coastal Andhra

11. Srikakulam 5,837 79 686.41 25.28 11.9 1.08 0.03

12. Vizianagaram 6,539 103 1,193.03 22.45 18.83 1.87 0.06

13. Visakhapatnam 10,807 188 4,411.66 37.90 39.3 6.92 6.13

14. East Godavari 11,161 161 3,232.44 48.73 29.9 5.07 0.07

15. West Godavari 7,742 50 811.66 37.96 10.4 12.73 0.02

16. Krishna 8,727 60 664.28 42.18 7.6 1.04 0.02

17. Guntur 11,391 118 1,619.41 44.06 14.2 2.54 0.04

18. Prakasham 17,626 130 4,424.99 30.55 25.1 6.94 0.16

19. Nellore 13,076 268 2,519.37 26.60 19.2 3.95 0.8

Total 92,906 1,157 19,563.25 315.70 21.06 30.66 0.07

Rayalaseema

20. Kurnool 17,658 103 3,515.49 35.12 19.8 5.51 0.12

21. Cuddapah 15,359 154 5,002.95 25.73 32.7 7.84 0.22

22. Anantapur 19,130 103 1,969.78 36.39 10.3 3.09 0.06

23. Chittoor 15,152 184 4,520.18 37.35 29.9 7.09 0.14

Total 67,299 544 15,008.40 134.59 22.30 23.52 0.30

Andhra Pradesh 2,75,068 3,266 63,813.73 757.27 23.20 100.00 0.10

Table 214: Budgetary Allocation for Forestry Works Allotted to VSSs in AP

Scheme Budgetary Allocation (Rcrores)

World Bank assisted APCFM (2002-07) 653.97

Forest Development Agency (2002-07) 76.92

RIDF schemes NABARD ( 1998 till date) 106.48

Total outlay 837.37

Note. APCFM Andhra Pradesh Community Forest Management; NABARD National Bank for Agriculture and Rural Development;RIDF Rural Infrastructure Development Fund.

13 Based on Andhra Pradesh State of Forest Report 2010 accessed on October 18, 2011 through http://forest.ap.nic.in14 Ibid.

96

Annexure 1: List of Machinery Manufacturers for Paper Manufacturing from Boda Grass

1. BRAMCO ENGINEERSE-55-56, Industrial Area,Yamuna Nagar - 135 001 (Haryana)Phone: 01732-250231; Fax: 01732-251110

2. GURPAL ENGINEERING WORKS,Near Bus Stand, Jagadhari.Yamuna Nagar - 135 001 (Haryana)Phone: 01732-230008, 01732-225857

3. UMESH INDUSTRIES132- A Vijay Nagar Opp. Kamala PalaceGhaziabad 201 001(U.P.)Phone: 0120-24741137(O); 0120-24740744(R); Fax: 0120- 24716177

4. HINDUSTAN PAPER( MACHINERY) INDUSTRIESE-67, Industrial AreaSirret No.1, Bulandshehar Road,Ghaziabad - 201 001Phone: 0120-24700613; 0120-24700563

5. SITSON INDIAW-76, M. I. D. C., Phase II,Dombivli (East), Dist. Thane - 421 204

Annexure 2: Machinery and Equipment for Paper Manufacturing from Boda Grass

Particulars Price (`) Horsepower (hp) Price (`)

Rags chopper 35,000 3

Grass cutter 30,000 3

Rotatory digester 2,20,000 5

Beater (24"X30") 1,60,000 15

Motorised screw press 60,000 3

Calendering machine 12x36 1,70,000 5

Guillotine machine 60,000 2

Submersible pump 25,000 5

Non Ibr boiler 3,00,000 5

Autovat (4 Nos) 80,000

Tausoki dryer 20,000

Weighing machine 20,000

Total 11,80,000 46 -

Total of machinery & motors 11,80,000

Installation charges, electrical & pipe fitting (10%) 1,18,000

Furniture & fixture 20,000

Couching table, felts, storage tanks 40,000

Transportation & packing charges 1,18,000

Misc. 24,000

Total 15,00,000

AN ANALYSIS OF THE PROPERTY RIGHTS OF FOREST DEPENDENT COMMUNITIES...

VIKALPA VOLUME 38 NO 3 JULY - SEPTEMBER 2013 97

Annexure 3: Financial Analysis

Production Costs, Revenue Details and Financial Analysis of Boda Grass-Based Paper Covers(Production from Single Unit)

Demand from TTD per annum (covers) 18,000,000

Selling price per cover 2.70

Loan amount 3,600,000

Investment per plant 1,500,000

No. of plants 1

Plant capacity (no. of covers/day) 4,000

Interest rate 5%

Depreciation rate 5%

No. of persons per plant 12

Production days per year 250

Discount rate 20%

Grass requirement per cover (kg) 0.0625

Rags requirement per cover (kg) 0.01875

Cost of grass per kg 10

Cost of rags per kg 5

Cost of chemicals per kg of grass requirement 1.80

Cost of power, fuel & water per cover 0.24

Cost of repair & maintenance per plant per 50day of production

Cost of packaging and customization per cover 0.25

Insurance 20,000

Salary per person per month 2,000

Transportation costs per cover 0.20

No. of months per year 12

Amount in `

Production per year (no. of covers) 1,000,000

Total revenue 2,700,000

Expenses

Boda grass 625,000

Rags 93,750

Chemicals 112,500

Power, fuel & water 237,500

Transportation 200,000

Packaging & customization 250,000

Salary 288,000

Insurance 20,000

Interest on loan 180,000

Depreciation 75,000

Repair & maintenance 12,500

Total cost of production 2,094,250

Total cost of production per cover 2.09

Profit before tax 605,750

Tax @ 30% 181,725

Profit after tax 424,025

Annual cash flow per year 499,025

Payback period in years 14

Net present value (considering cash flows 558,542for 20 years) @ 20%

98

Break-even Analysis of Boda Grass-based Paper Production (Single Unit)

Cost Description Fixed Costs (`) Variable Costs (`)

Variable costs

Raw materials 831,250

Transportation 200,000

Packaging and customization 250,000

Power, fuel, & water 237,500

Fixed costs

Salaries (includes payroll taxes) 288,000

Repairs & Maintenance 12,500

Insurance 20,000

Interest 180,000

Depreciation 75,000

Total fixed costs 575,500

Total variable costs 1,518,750

Total variable costs per cover 1.52

Break-even sale (no. of covers) = 487,196

Break-even year = 0.49

No. of Years No. of Covers Fixed Cost (`) Variable Cost (`) Total Cost (`) Total Revenue (`)

0.1 100000 575,500 151,875 727,375 270,000

0.2 200000 575,500 303,750 879,250 540,000

0.3 300000 575,500 455,625 1,031,125 810,000

0.4 400000 575,500 607,500 1,183,000 1,080,000

0.5 500000 575,500 759,375 1,334,875 1,350,000

0.6 600000 575,500 911,250 1,486,750 1,620,000

0.7 700000 575,500 1,063,125 1,638,625 1,890,000

0.8 800000 575,500 1,215,000 1,790,500 2,160,000

0.9 900000 575,500 1,366,875 1,942,375 2,430,000

AN ANALYSIS OF THE PROPERTY RIGHTS OF FOREST DEPENDEN