ALTHOUGH the Free Trade Agreement (FTA) with Sri Lanka has generally been welcomed in India, there is concern in some quarters that the reduction in import tariffs on a long list of commodities would affect several States. Under the FTA, import tariffs from Sri Lanka on nearly a thousand commodities will be reduced to zero over three years. There will be a similar phasing out of import tariff over eight years on nearly 900 items exported to Sri Lanka.
Kerala and Sri Lanka have similar agro-ecological features and produce and export similar agricultural commodities, namely coconut, rubber and spices. The rural economy of the State and the livelihoods of the majority of its people depend on these crops, which together account for more than 70 per cent of the net cropped area and a major share of the State's agricultural income.
Import tariff reduction on coconut and coconut products is a source of anxiety in Kerala, which had a near-monopoly in coconut production until the mid-1970s. Kerala lost ground to neighbouring States in sectors such as the milling of copra. Kerala accounted for 95 per cent of the country's total production of copra until a decade earlier. While Kerala struggles to compete with its neighbours, the FTA allows Sri Lanka, which is a major exporter of coconut oil and other coconut-based products and which has a diversified industrial base, a free run in the market. Even if only a part of Sri Lanka's exports are diverted to India, be it the raw material or the end product, Kerala could face a crisis.
Kerala, which accounts for 96 per cent of the rubber production in the country, has protested also against the inclusion of rubber in the list of imports from Sri Lanka. India has achieved near self-sufficiency in rubber production and the liberalisation of imports has been followed by an alarming fall in rubber prices from Rs.65 a kg to Rs.23, in two years. According to the Rubber Board, the cost of production of a kg of rubber is around Rs 40. As more than 85 per cent of Kerala's rubber is cultivated on small holdings, any import of rubber and rubber products from Sri Lanka would be detrimental to Kerala's small cultivators. There is also the fear that major rubber-producing countries such as Indonesia may use Sri Lanka as a conduit to export their rubber and rubber-based products to India. For the present, the Government has given an assurance in Parliament that rubber will be kept in the negative list.
Although the production of spices such as pepper, cardamom, cinnamon and cloves in Sri Lanka is marginal compared to that in Kerala, the consumption of these spices in Sri Lanka is very low. According to State Government officials, Sri Lanka's annual export surplus would be around 4,000 tonnes of pepper, 500 tonnes of cloves and around 100 tonnes of cinnamon. Of the total annual production of 60,000 tonnes of pepper in Kerala, 70 per cent is exported. Kerala also produces 3,000 tonnes of cloves and 100 tonnes of cinnamon. According to State Government officials, these commodities face price fluctuations because consignments are smuggled in from Sri Lanka. They say that though the quantity involved is relatively low, it depresses the market. For example, Sri Lanka offloads cloves at a relatively low price at the Calcutta port and the commodity then enters India via Nepal, under the Indo-Nepal trade treaty. One official said that Kerala was less apprehensive about the provisions of the agreement per se than the possibility of foul play by competitor countries.
Dr. I.S. Gulati, Vice-Chairman of the State Planning Board, said: "The State Government asked the Centre to include coconut and coconut products, rubber and rubber products, spices and tea, in that order, in the negative list. The Centre has so far given a firm commitment only in the case of rubber."
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