The liberalisation of the import regime is certain to affect the livelihood of large numbers of primary commodity producers.V. SRIDHAR
MUCH of the mainstream media in India have enthusiastically welcomed the removal of quantitative restrictions (QRs) on imports with respect to 714 items, the centrepiece of the Exim Policy announced on March 31 by Union Minister for Commerce and Industry Murasoli Maran. The Indian consumer, it is claimed, had been crowned king, and Indian shop shelves will soon be stocked with a range of foreign consumer brands hitherto seen only in satellite television programmes.
Commodities such as fish and fishery products, tea, coffee, milk, spices, vegetables and rubber products figure prominently on the list of items that can now be imported freely. But the heaviest impact, in terms of the number of producers likely to be af fected, will be on the agricultural sector. As many as 229 of the 714 items on the "freed" list are agricultural commodities. Textile products account for 37 items while manufactured goods make up much of the rest.
In all this consumer-driven hype and euphoria, the interests of the Indian producer, particularly of the smaller and poorer type, have been sidelined, and questions about the threat to the livelihood of millions of primary commodity producers are not bei ng raised. Many of these producers cultivate small landholdings or operate tiny business units and their asset-base is poor. For instance, a substantial proportion of the milk-producing units are run by women; and a large section of the milk producers co nsists of those with small livestock holdings. Millions of fisherfolk and fishworkers are the mainstay of the fish economy of India. The Exim Policy raises livelihood questions in respect of millions of small producers whose sustenance is likely to be af fected in a major way.
Plantation owners, particularly those in South India, are likely to face the threat of cheaper imports. The United Planters Association of Southern India (UPASI) had, in a pre-Budget memorandum to the Finance Minister, sought tariff protection for crops such as coffee, tea, natural rubber and some spices.
Representatives of fishworkers, particularly those who have in the past resisted attempts to liberalise the deep-sea fishing policy regime, have said they will organise protests against the new policy. Sister Philomina Marie of the National Fishworkers' Forum told Frontline that fish prices would crash under the impact of large-scale imports.
More than 60 fishery items are now off the QRs list. Among these are low-value varieties such as mackerel and sardines and high-value varieties such as tuna, seer and pomfret. K.M. Shahjahan, a fisheries expert at the Kerala State Planning Board, said th at the issues need to be placed in the context of the attempts by successive governments to introduce a liberal deep-sea fishing policy. Foreign fishing companies, facing an overhang of excess capacity, are looking for new avenues in tropical waters. Alt hough the T. Murari Committee on the deep-sea fishing policy (submitted in 1996) recommended that no fresh permits be issued to foreign fishing vessels to operate in Indian waters, there is apprehension that the government may yield to pressure to relax the curbs on foreign fishing companies in this matter.
Shahjahan believes that the prices of low-value varieties of fish would also fall if high-value varieties are imported. He argues that there is substantial scope for cost reduction because middlemen, who now command the shore price of fish, make exorbita nt profits. He fears that if foreign fishing vessels are allowed to operate in Indian waters, even fish such as sardines and mackerel that are caught in the deep seas could be taken to other countries, processed there, and sold in India. Fishworkers' uni ons have argued that foreign companies are looking for access to tropical seas because they are relatively unexploited or underexpolited as compared to the temperate seas.
Shahjahan believes that the margins of the middlemen are so high now that it would still be viable for companies to sell imported fish in the Indian market by undercutting domestic prices. The difference between the shore price - the price that fisherfol k get - and the consumer price - the price that the final consumer pays - is now high. However, fisherfolk would have to pay with their livelihood as the gap is narrowed. There is apprehension that since the gap is currently very high, even the impositio n of peak levels of tariff allowed within the World Trade Organisation (WTO) regime will not deter imports.
Fish exporters have welcomed the Exim Policy. Industry observers believe that this is because they are operating with substantial excess capacities; capacity utilisation is now only 20-25 per cent. The availability of cheaper imported fish would enable t hem to expand operations and use their idle capacities. A Kochi-based exporter said that the new policy would enable the export of tuna. Since tuna prices are high in the Indian market, exporters do not enjoy a comfortable margin. The situation, he reaso ns, could change dramatically once cheaper tuna is imported into the country.
ALTHOUGH natural rubber has not yet been removed from the QRs list, it is due to be taken off the list in April 2001. However, rubber products such as footwear have been removed from the list. Rubber growers, particularly those in Kerala, have already be en reeling under the impact of a severe recession in the last few years. The demand for natural rubber has shrunk, prices have fallen progressively, and growers have suffered losses of several hundred crores of rupees.
Small growers, who on an average have holdings of less than half a hectare, are the most severely affected. They account for 85 per of the area under cultivation; they also produce 85 per cent of all natural rubber produced in the country. Informed sourc es on Kerala's State Planning Board said that the new policy was likely to affect the State government's programme to encourage the production of rubber chappals. They said that the programme was intended to boost the sagging demand for rubber. There are fears that cheaper imports will hit the rubber processing sector in the State.
Despite falling rubber prices, the Rubber Board, aided by the World Bank's subsidisation programme, has continued its rubber planting promotion scheme. In fact, it had projected an increase of 40,000 hectares under rubber cultivation; of this 25,000 ha i s to be in the traditionally rubber-growing areas. Critics of the Board's policy have argued that its logic, based on the premise that the price collapse is a temporary fallout of an industrial recession, is likely to impose more hardships on the growers as prices are driven down further.
Indeed, those who have followed the fluctuations in the international commodity markets argue that the World Bank's purpose in intervening in such programmes is to ensure supplies for consumers (the big-time tyre manufacturing companies, in this instance ) rather than to stabilise prices and protect the large numbers of growers whose livelihoods may be at stake. These critics also believe that the Board would be better advised to initiate steps to widen and deepen the demand for rubber. They have suggest ed that the proceeds of the cess collected on the sale of rubber be used for this purpose.
INDIAN spices are likely to face a serious threat from competitors. Indian garlic is facing competition from Chinese garlic. At the local wholesale market at Koyambedu in Chennai, a trader said that garlic from China, arriving by the containerloads at th e Chennai port, had destroyed his business.
Other spices such as ginger, cardamom, pepper, cloves and cinnamon face similar perils. Ginger from China and Nigeria may jeopardise Indian export prospects. Pepper, cloves and cinnamon produced in Vietnam, Malaysia and Brazil are also a threat. In recen t years, cardamom producers have complained of large-scale smuggling through the porous Indo-Nepal border.
T. Vidyasagar, former president of the International Pepper Exchange in Kochi, said that although the trade regime had been made "import-friendly", Indian spice producers continued to face many hurdles. Having accepted the WTO regime, India had no choice but to "fall in line with the global market", he said. Imports face only one hurdle, at the Customs, while Indian producers face many more hurdles: the 22 agencies involved - from the village office issuing licences up to the Union Agriculture Ministry in New Delhi - impose a tight system of controls, complains Vidyasagar.
State promotion of spice production, in the form of education for cultivators leading to better and scientific cultivation practices, is inadequate, says Vidyasagar. This, he says, has resulted in the neglect of commercial crops. A leading spice exporter said that the International Pepper Exchange in Kochi is "just about alive, not dead yet". He complained that the "swadeshi-videshi tussle" is being played at the Exchange.
Black tea still remains on the QRs list, tea concentrates and instant tea have been removed. However, S.M. Kidwai, managing director, Tata Tea, said that Indian tea producers would face problems only when imports of tea of African origin were permitted. He said that Indian tea was competitive vis-a-vis tea produced in Sri Lanka and Bangladesh. Tata Tea does not expect any change in the situation in the domestic market. He is positive that in the new situation, "our competitors cannot do anything in the market that we also cannot do and, perhaps, do better".
Although foodgrains still remain on the QRs list, wheat, rice and maize flour have been removed. Murasoli Maran has maintained that sensitive items which involve the livelihood of large sections of the population would be afforded high levels of tariff p rotection, within the bound rates prescribed in the WTO framework. The government said that its recent decision to impose 80 per cent tariff on rice imports was in keeping with this commitment. However, whether tariffs alone can afford protection is a qu estion that remains to be answered.
In the international grain trade, for instance, major wheat producers such as Canada and the United States are exploring markets in the developing countries. Since the fall of socialist governments in Eastern Europe, markets in Eastern Europe, which at o ne time bought more than 25 million tonnes of foodgrains annually, have virtually collapsed. To the agribusiness multinationals, therefore, developing countries such as India are potential markets to replace the ones lost in Eastern Europe.
The common argument that cheaper imports will benefit Indian consumers and that they will put pressure on the Indian producer to be competitive vis-a-vis "international best practices" is flawed on several counts. For instance, agricultural subsid ies in the U.S., Japan and Europe were increased sharply in the 1980s. By 1986-88, the base period which is being adopted for the pruning of subsidies, the producer subsidy equivalent (PSE) in the U.S. covered 45 per cent of the total value of agricultur al production in 1986, up from 9 per cent in 1980. In Japan, the PSE covered 93 per cent of the value of agricultural output in 1986, up from an already high 71 per cent in 1980. In 10 countries of the European Union the PSE covered 66 per cent of the va lue of agricultural output in 1986, compared to 66 per cent in 1980. Thus, by the time negotiations within the framework of the General Agreement on Tariffs and Trade (GATT) concluded after tortuous negotiations, the advanced countries had already hiked the subsidies paid to farmers in their countries.
In such a situation, tariffs can only play a limited role as a barrier. This is because prices are already seriously distorted by the big subsidies that agricultural producers in the advanced countries enjoy. This also gives them the ability to undercut prices when competing in economies that are less developed or those in which state support to the agricultural sector is weak. Measures of productivity or competitiveness, based purely on relative prices, thus become illusory.
In retrospect, India's position at the WTO was deeply flawed from the beginning. Its reasoning that QRs were needed to tackle a balance of payments problem undermined its own case. In fact, the rationale for continuing with QRs was dictated by the nature and needs of the Indian economy and society. Issues of employment, livelihood and food security provided the logical underpinnings for the continuance of such a policy. The ground beneath the weak Indian position adopted at the WTO negotiations slipped when balance of payments factors could no longer be cited for the continuance of QRs. That India did not have much of a choice at the WTO is another story.