Kerala’s fear of INDIA – ASEAN Free Trade Agreement: A reality check

Led by Communist Party of India (Marxist), hundred of thousands of Kerala residents took to the streets to form a mammoth human chain from one end of the Kerala to the other to express their anger over the recently signed India-ASEAN Free Trade Agreement (FTA).

The agreement seeks to remove or reduce the tariff on trade-in-goods including sensitive products such as coffee, tea, palm oil and pepper in a phased manner. The import tax on Kerala’s products like coffee, tea, rubber, copra, coconut, coir, cashew, pepper, cardamom, coconut oil etc will have to be brought down to 50% or less by 2019. Import tax for Palm Oil has to be brought down to 40%. At present the import tax is cent percent for tea and coffee. It is 70% for pepper and 90% for Palm Oil. The liberalisation in trading of cash crops will expose Kerala’s small and marginal farmers in the plantation sector to the competition and this, some argue, may lead to over one million job losses. The partial duty cuts in 2019 will mean that the import prices will become cheaper than the local produce which will eventually jeopardise the interests of millions of cash crop farmers.

The central government seems to betting on the argument that India’s billion plus population as against the ASEAN’s 600 million population ultimately works in India’s favour presenting a substantial opportunity for Indian exporters and businessmen. The Centre argues that the agreement gives Indian exporters a tremendous opportunity to gain additional market space in the sectors like machinery and machine parts, steel and steel products, and agricultural products such as oilcakes, wheat, auto components, chemicals and synthetic textiles where the bilateral trade in the year 2007-08 stands at nearly $40 billion.

The Centre seems to have a different view on the impact of the agreement on Kerala’s economy. Anand Sharma, commerce minister, told a delegation of Left parties on October 5 that the sensitive farm sectors have been protected in the FTA. “What we will definitely do is to have some experts look into the plantation sector and their problems so that the eGoM has inputs from people who have more knowledge. But let me make it clear that problems of our plantation sector are structural and have nothing to do with the Indo-Asean FTA.” The minister also urged the government to take measures to increase the agricultural productivity by engaging skilled labour.

If we attempt to gauge the effects of the agreement, there are over 300,000 workers in the coir sector and nearly 250,000 in the cashew sector whose jobs will be at stake once the pact comes into effect from Jan 1, 2010. According to All India Kissan Sabha, the productivity levels of Kerala’s farmers are far lower than their counterparts in the ASEAN region who enjoy the benefits of economies of scale. The difference in productivity levels between Indian farmers and ASEAN farmers is so vast that any reduction in the existing tariff rates will “sound the death knell” for over one million farmers and labourers engaged in the plantation and maritime sectors.

The central government’s argument that coconut is in the negative list and the coconut farmers are thus protected does not hold ground in reality. Reduction in palm oil tariff will have severe implications on the coconut farmers as Palm oil is a substitute of coconut oil and the deal will enable palm oil to take over the market. The import of palm oil has already caused huge economic distress among the groundnut farmers, leading to suicides in regions such as Ananthapur in Andhra Pradesh.

Vani Archana, Indian Council of Research in International Economic Relations (ICRIER), said that “an FTA will adversely affect the unorganized sectors, especially the agricultural sectors, as the domestic market will be flooded with cheap imports. This view holds true for India, because of low productivity in these areas. The Indian government must meet this challenge by providing all necessary and reasonable support to the various stakeholders in the trade agreement, especially the unorganized sectors like agriculture, so that their production efficiency is brought in line with those of the other ASEAN countries. Measures should be taken by the governmental and non-governmental organizations, along with self-governed bodies of farmers, to strengthen the competitiveness of India’s agricultural sector.”

So the deal is not just a case of a substantial opportunity riddled with “minor” challenges as the Central government puts it.