The Indian Foreign Trade Policy announced by the Ministry of Commerce is being touted as beneficial to all sectors of the economy, including farming. Minister Kamal Nath stated that our foreign trade increased from $125 billion to $160 billion this year and will touch $200 billion by the end of the next financial year. India's share in international trade has increased from 0.7 percent to 1 percent, which is a remarkable achievement. As per the Trade Policy, there will be no service tax on exports and the Duty Entitlement Passbook (DEPB) Scheme, which offers tax relief on exports, will be extended till next March. Another change made was an announcement of export subsidy for both soy oil and coconut. All this is being projected as a blessing for Kerala.
On paper, all of this looks good. The reality however, is different. During his budget speech, the finance minister P Chidambaram announced plans to develop a package to improve and rejuvenate coffee, rubber, spices, cashew and coconut plantations to help farmers of Kerala to tide over the agrarian crisis. However, no financial allocation has been made for this in the budget. One wonders whether any parliamentarian noticed this lapse.
On 3 March 2007, the deputy minister of commerce, Jairam Ramesh, told the media in Delhi that the central government allocation for the above package will be worth Rs.2,900 crores. This fund was to be made available through the Horticulture Mission. According to the deputy minister, the allocation for pepper will be Rs.476 crores, Rs.60 crore for cardamom and cashew, Rs.450 crore for rubber, Rs.1,350 crore for coconut, Rs.258 crore for tea and Rs.160 crore for coffee. He also added that Rs.50 crore has been allotted for 100 cashew processing units and 25 percent central subsidy would be given for re-opening the closed tea plantations.
More than seven years have passed since the current agrarian crisis gripped Kerala. More than 80 percent of agriculture produce of the state is exported. Except rubber, productivity of most of the perennial crops has been going down in the last few years. Along with the hike in cost of inputs, farmers are unable to get a profitable price for their products. The prices of almost all the cash crops, including rubber have crashed primarily due to the export-import policy induced by the liberalisation process and due to the conditions imposed as part of the WTO, FTAs (Free Trade Agreements - Indo-SriLanka, Indo-Thailand) and SAFTA (South Asian Free Trade Agreement).
This is not all. While the Centre has never intervened to tackle price volatility, on the other hand it is coming up with policy prescriptions that are pushing farmers out of farming. Take some of the recent policies.
Last year, the import tariffs for edible oil were reduced thrice. The 4 per cent additional customs duty for edible oil has been removed in this year's budget. The tax on sunflower oil has also been reduced by 15 percent. Further, the central government gave a unique New Year's gift for Kerala farmers, when on 14 April 2007 the import tariff of refined palm oil was reduced from 67.5 percent to 57.5 percent and that of crude palm oil from 60 percent to 50 percent. Since June 2006, the market price of copra, coconut oil and fresh coconut has been falling drastically. At present, the farmers are only getting on an average Rs.3.80 for a fresh coconut. In the whole sale market, the price of copra is Rs.3,200 per quintal and for coconut oil it is Rs.4,750 per quintal.
There are 40 lakh coconut farmers in Kerala who are being adversely affected by this reduction of import tariffs of edible oils, ostensibly in order to contain inflation in the markets of northern Indian states. The announcement of export subsidy for export of coconut oil in the Foreign Trade Policy does not really help coconut farmers. The price of coconut oil in the international market is around $675 per metric ton, or roughly Rs.27 per kilogram. On the other hand, the domestic price of coconut oil stands at Rs.47.50 per kilogram, which exposes the hollowness of this announcement. This is because the cost of production of coconut oil in India is higher than that of Phillipines which is the major global producer of coconut oil. Further, Kerala which accounts for 46 per cent of the coconut area in India is under the grip of the dreadful root (wilt) disease and eriophid mite attack, which takes a heavy toll on the yield of coconut in Kerala.
Similar is the case with pepper where the productivity is only around 320 kgs per hectare in Kerala, whereas it is 1.2 tonnes per hectare in Vietnam and 2.3 tonnes in Indonesia. The age old pepper gardens of Kerala sustain only senile pepper vines, which are also subject to quick wilt disease, which accounts for more than 50 per cent fall in production. The removal of export subsidy for pepper and the increase in the number of days (from 120 to 180) for holding the imported pepper for oleoresin extraction has turned into another threat for the pepper farmers. Since the production of pepper has reduced by half in Kerala, the domestic price of pepper should have doubled.
But this did not happen because of the liberalised imports allowed by the Commerce and Agriculture ministries. Moreover, speculations in commodity exchanges are causing price volatility in pepper. These speculative tendencies should be regulated by the Forward Marketing Commission functioning under the Central Agriculture Ministry. The Central government still do not reveal the statistics regarding import of pepper at zero-tariff under FTAs. The reasons for the fluctuation in the domestic pepper market can be understood only if these statistics are also made available.
The productivity of rubber in Kerala is the highest in the world. According to Rubber Statistics 2006 published by Rubber Board of India, the mean annual productivity is 1726 kgs/ha, which is highest in the world. For a long time now, domestic prices of rubber are much lower than international prices. As of 9 July, the price of rubber in the international market was Rs.82.95 per kg while domestic price was only at Rs. 74.25 per kg. Despite lower prices, import of rubber is continuing. In 2004-05 India imported 68,718 tonnes of rubber which climbed further to 82,000 tonnes in the last financial year. This is because tyre manufacturers and other rubber industries are importing rubber against advance license duty free. This is an advantage for them over buying the domestic rubber, wherein they have to pay a rubber cess of Rs.1.5 per kg and a value added tax (VAT) at the rate of 4 per cent and also excise duty. In spite of this, the central government is considering reducing the import tariff to 5 per cent, which is a major cause of concern.
The Tea and Coffee plantations also tell the same story. Overall, it is quite clear that in the coming months, almost all the crops of Kerala - rubber, pepper, cardamom, ginger, turmeric, coffee, tea and vanilla will face a similar crisis as in the case of coconut.
Perhaps the biggest threat to Kerala's cash crops will be on account of the ASEAN free trade agreement, wherein India will have to drastically reduce tariffs on edible oil, pepper, tea and coffee and by 2018, these have to be brought down to zero. ASEAN nations are also demanding more number of agricultural products to be included in the zero-tariff list. They have not conceded to India's offer to bring down tariffs by 50 percent and to bring this about effect this in a phased manner by 2022.
If the Indo-ASEAN FTA is signed this July, then India will have to drastically bring down import tariffs of all these crops. As it is the import tariff of edible oil, pepper, tea and coffee was brought down recently from 70 percent to 50 percent. (As of now, the agreement has not been signed.)
Thailand (rubber), Indonesia (pepper, palm oil, arecaunut), Malaysia (palm oil and rubber), Philippines (coconut oil and coconut products), Sri Lanka (pepper, tea, and coconut products), Vietnam (pepper, tea, cashewnut, rubber).
The affection of the Indian government leadership and bureaucracy for the SAARC and ASEAN countries is making the lives of 1.5 crore farmers of Kerala a nightmare. The people's representatives in the parliament should demand that the Indian government show some more sympathy to our hapless farmers. The Indian Foreign trade policy should be redrafted from a farmers' perspective. In the meantime, as far as faulty economic prescriptions and proclamations go, it is hard to beat the Commerce Minister, Kamal Nath, his deputy, Jairam Ramesh and the Finance Minister, P Chidambaram.