Studies by Dr H A C Prasad in collaboration with India Exim Bank1 have shown how earlier FTAs affected some sensitive sectors of India.
There is a need to be careful while liberalizing some sectors/items for FTAs though the list of such items /sectors in the Exclusion list should be kept to the bare minimum. The DIPP has also recently come up with a proposal to identify sectors to be kept in the Reserved list in the context of FTAs. However, many parameters have to be considered while identifying these sectors. Some examples of sector-specific issues/ experiences in this context are the following.
In the case of the electronics sector, the Industry has pointed out that FTAs have done great damage to the local industry as India is a huge consumer market and in signing FTA with the ASEAN, domestic electronic manufacturing was adversely affected. This sector has been badly affected by ITA1 with 217 tariff lines at zero duty since April 2005. By the time the ITA1 was implemented, the Newly Industrialized Countries (NICs) of Asia had become competitive in this sector, while India was just entering this sector. Thus, ITA1 badly affected the domestic Electronics sector. Further damage should not happen to this sector due to FTAs. So, the option of lowering tariffs in this sector is limited except for inputs needed to strengthen domestic manufacturing. A carefully thought out tariff rationalization policy is needed if India has to make up for the loss in missing the bus and make its dream of ‘Make in India’ a reality in the semiconductor sector
In the case of Agricultural Sector, there are some sensitive items with livelihood concerns, where caution is needed. But the issues in each of them differ. Some examples are given below.
Natural rubber (NR):NR is not covered by the Agreement on Agriculture (AoA) though it is an agricultural product due to the irrational product coverage. The applied Import tariff on NR is 25% or Rs 30 per kg whichever is lower for Dry forms of NR and 70% or Rs 49/- per kg whichever is lower for Latex. Though Import duty for latex is relatively high, latex accounts only for around 7% of NR consumption in India and less than 2% of it is imported. Imports of Natural Rubber has increased mainly from Indonesia, Malaysia, Thailand, Singapore and Vietnam. Domestic price has come down much below the Cost of Production resulting in huge loss to producers which has compelled many producers not to tap rubber.
Tariff lines on NR under HS 4001 were included in exclusion/negative lists in all major FTAs (except SAFTA). Under SAFTA, NR is allowed to be imported from least developed country members at zero duty from 2011. Least developed country members of SAFTA are Nepal, Bhutan, Bangladesh, Afghanistan and Maldives. Among these countries, Bangladesh is the only producer of NR and hence NR can be imported into India at zero duty from Bangladesh. Tariff concessions were also given under APTA, by applying a 20% tariff with effect from 1st July 2018.
In view of the above facts, further Tariff liberalization for Natural Rubber for FTAs is not advisable as it has major livelihood implications in South India. While APTA countries are not major exporters and the threat is less ,export of NR by Bangladesh is also not high. But rules of origin should be implemented strictly. NR is also affected by the import of low tariffed synthetic rubber ,though in 2023 Budget import duty on Compounded Rubber was increased .Tariffs on Synthetic rubber should be rationalized by not only taking note of the concern of its users, but also the producers of NR.
Pepper
Pepper has an import duty of 70% at present. The price of pepper which in 2015-16 and 2016-17 was around Rs.700 per kg came down to Rs.300 per kg in 2018-19,but has rebounded to Rs 600 plus per kg this year. While the Government of India imposed minimum import price on Pepper which is more or less equal to the cost of production, any reduction in MIP could jeopardize the interests of the predominantly marginal & small growers of Black Pepper.
India imports pepper mainly from Sri Lanka, Vietnam and Indonesia. Inclusion of pepper in some FTAs with differing tariff concessions is causing problems. Under ASEAN, duty payable is 51% whereas under Indo Sri Lanka Free Trade Agreement (ISFTA) and SAFTA the duties are zero percent and 8%. So, diversion of Pepper to avail the best preferential duty is resorted to by unscrupulous elements who reroute Pepper of Vietnamese or Indonesian origin via Sri Lanka. In Sri Lanka, importers manage to get the certificate of origin of Sri Lanka easily for Pepper originating from Vietnam or Indonesia which is of poor quality with chemical residues and avail the benefits under these FTAs. Large quantities of pepper are also being smuggled into India via Nepal, Myanmar and Bangladesh borders.
In view of the above, Pepper should not be included in any new FTAs and Minimum Import Price of Rs.500/- needs to be continued. The above also indicates the need for having a uniform preferential tariff under all FTAs for a particular item, including for Pepper, proper implementation of Rules of Origin including imposing a ban on imports from those countries which do not grow Black Pepper even if they are part of any FTA of India, scrutinizing all duty refunds on re-exports as re-exports are sometimes done even without value addition only to get refunds, and continuation of the Quota under ISLFTA as this has livelihood concerns of large number of people in states like Karnataka, Kerala and Tamil Nadu. India is now in the process of relaunching the Economic and Technology Cooperation Agreement (ECTA) with Srilanka and these concerns need to be taken care of.
Arecanut
Arecanut has 100% import duty and MIP of Rs 351 per kg at present. India produces more than 50% of the World production of Arecanut and about 10 million people depend on this Crop. Import duty exemptions/ concessions are given to goods imported from Myanmar through Land including Arecanut/Betelnut. SAFTA LDCs (including Bangladesh, Bhutan, Maldives, Nepal, Afghanistan) have been extended 0% duty. Similarly, India’s preferential tariff for Srilanka is 0%, SAFTA 8%, SAPTA 50% and SAPTA LDCs 40%. Imports are mainly from Srilanka and Indonesia though there are reports of informal or illegal imports from Myanamar. The DGFT, on July 03, 2023, made an amendment to the Import Policy allowing the import of 17,000 metric tonnes of fresh (green) Arecanuts from Bhutan without the requirement of a Minimum Import Price condition. Furthermore, the import can be facilitated through LCS Chamurchi . This has led to anxiety among growers as already there were reports of illegal imports of Arecanut from Myanmar and arecanut prices witnessed a slight fall.
Since Arecanut imports affect the livelihood of many people in many parts of South India and Assam, there is no need to include Arecanut in any future FTAs .
1 a) "Impact of Covid-19 on India's International Trade: Strategies and Policy Perspective", (In collaboration with India EXIM Bank), Special publications, India EXIM Bank, February 2021
b) “Relooking India's Tariff Policy Framework”, (In collaboration with India EXIM Bank), Special publications, India EXIM Bank, March 2020
