Saturday, June 6, 2020

Buyback: The Miss-Coined & Misunderstood Concept

The miss-coined concept that has been popularized as “buyback” is once again doing the rounds in the corridors of power - that of the Ministry of Agriculture. This is the state of our bureaucracy - they do not even know what they are talking about.

They either do not understand English or, failing that, they are clueless about the logic behind what they are contemplating to do -which is even more dangerous.

From what I know:

Typically, buyback happens in the corporate world. Companies engage in buyback for a number of reasons - principal among them are to reduce the number of their Shares being available in the market – an attempt to keep the prices high. Companies also buyback their own Shares from the market - so that plentiful of them are not available to potential corporate raiders from gaining a controlling right through major Share holding. Companies also buyback their own Shares so that they may gift them to employees as bonus.

Buyback, in other words, happens when something has been pre-sold to a buyer and you now want to buy them back - for your own reasons. It is not a support scheme. If the Ministry of Agriculture does not understand a simple concept such as this, how do they expect to implement the scheme in any meaningful ways?

The term to employ - for the purpose for which they use the term, should be either of the following two:

a.  Support Price
b.  Subsidy

SUPPORT PRICE: In my thinking, Support Price is more appropriate. Support Price is understood as a scheme where the government agrees to purchase surplus production of essential goods from the farmers - at a minimum fixed price – to either prop up the market price or to offer a market for the farmers during their times of stress. Which is what the Bhutanese farmers’ situation is expected to be soon.

SUBSIDY: Subsidy is a fixed sum of money given by the state to farmers and other select important industries or services, as an encouragement or to keep the prices low in the market. It is not a price offer - but a supplementary gesture. In this case the state does not buy the goods or services.

Support price scheme is good and necessary. Unfortunately, it is prone to massive manipulations by the crooks and the immoral opportunists. The country has had a taste of it - in the early 80’s - the effect of which has been felt decades later - the issue still remains unresolved - after close to four decades.

While the mighty Ministry of Agriculture and its officers reorient their thinking on their "buyback" thing, I will do some re-contemplation on whether I should tell the story of the support price that went horribly wrong - nearly four decades back - when the state was hood-winked of hundreds of millions - for private and individual gains.

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