India's RCEP pull out gives Kerala a big relief. Here is why

On Monday, India decided to opt out of the Regional Comprehensive Economic Partnership, or RCEP, that offered to drop tariffs and duties between the members so that goods and services could flow freely between them.

The partnership was originally devised to include 16 countries. With India's pull out, the number has been reduced to 15. The current members are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam (all ASEAN members. Asean is an an intergovernmental grouping of 10 Southeast Asian countries). China, Japan, South Korea, Australia and New Zealand are the remaining countries. India has a trade surplus - more exports than imports - with only 4 of the 15 RCEP nations.

A few days before India announced its pull out, the Kerala Assembly passed unanimous resolution against RCEP as it felt that 'the deal would destroy agriculture sector and medium and small scale industries.'

BJP's lone member O Rajagopal was absent when the resolution was introduced.

Many politicians expressed their concerns about the deal. Among them was Kerala's Finance Minister TM Thomas Isaac, who opined that signing the deal would be a 'Himalayan blunder'. “Because India's trade deficit with ASEAN increased by more than four times from 2011,” he said.

Why did Kerala oppose RCEP deal?

Here's the gist of the resolution adopted by the Assembly: “If goods from partner countries flew into India without any restrictions, our agriculture sector and medium and small scale industries like poultry, dairy, fisheries will face huge challenges.”

Industry-wise comparison of Kerala's trade relations with the ASEAN countries would help you understand the issue better.

Marine products

According to the Kerala State Planning Board's Economic Review in 2018, the largest importer of Kerala's marine products is South East Asia (44.78 per cent) while China accounts for 2.35 per cent.

Kerala contributes to about 13.12 per cent of India's total exports of marine products, with frozen shrimp and frozen fish topping the charts. Though there was a significant drop from 2011 figure of 18 percent, marine products export from Kerala recorded a growth of 12.26 per cent in quantity and 18.18 per cent in value in 2017-18.

Cashew

The RCEP would have sounded the death knell of the industry which recorded a decline of 43.19 per cent in volume and 48.52 per cent in value of raw cashew exports in 2017-18.

The decline in cashew exports is coupled with a rise in import of cashew, which implies a rising trade deficit.

Only 50 percent of the domestic demand is met by India, and the rest is imported to meet the demand-supply gap. Though other nations of the RCEP deal are not significant consumers of cashews, India's fourth largest exporter of cashews, Japan is a part of the deal.

Kerala’s share in total export of cashew kernels from India in volume has also suffered a decline from 57.29 per cent in 2014-15 to 43.78 per cent in 2017-18. India is the largest exporter of raw cashew nuts in the world.

But the increasing import of low quality kernel imports from Africa and ASEAN nations had prompted the Centre to introduce a minimum import price for whole and broken cashews in June, 2018.

Coir products

India registered growth in the export of coir pith, coir fibre, tufted mat, rubberised coir, coir other sorts, coir rope and power loom matting in 2017-18, while products like handloom mats, coir geo-textiles, coir yearn, curled coir, handloom matting and power loom mats showed decline.

China and South Korea of RCEP are among the major exporters of coir products from India. Kerala accounts for 24.28 percent of the coir exports.

India's coir industry is currently struggling to break the existing pattern in its value chain, which involves huge import of coir yarn to China and its export back to India after value addition at a higher price.

Had India signed the deal, the country would not be able to break free from this vicious cycle and graduate to a higher point in the global value chain.

Tea, coffee and spices

The RCEP nations, China, Singapore and Malaysia are among the leading exporters of India's tea, coffee and spices. Kerala accounts for 29.5 per cent and 13.7 per cent of India's tea and coffee exports, respectively.

The state also accounts for 9.29 per cent and 23.1 per cent of the quantity and value spices' export respectively. The top exported spice products, such as chilli, mint products, cumin, turmeric, pepper and cardamom, also happen to be Kerala's specialised products.

The trade deal would have dipped the Indian export prices. The pepper prices in Kerala had declined during the past couple of years owning to the rise in pepper import.

Free trade agreement of any kind enhances competitiveness and improves consumer prices. However, it also plays a major role in benefiting countries which have a historical advantage in industrialization and modernisation. India can benefit from such an agreement only when it takes the essential leap to overcome this historic advantage.

Kerala, which is a largely consumerist state suffers from the lack of productivity and high cost in agricultural and industrial sector. Its limited agro-based industries, which rely on exports, would have suffered a severe blow if the RCEP had come into being.