Regional Comprehensive Economic Partnership – Four words that have taken India by storm over the past month. This only made news when the news broke about India pulling out of the deal citing concerns about damage to India’s domestic industries especially the agricultural sector. Farmer groups have been protesting the RCEP deal ever since the news broke about the impending inking of the deal.
Let us examine the agricultural industry and why India believes it is not ready for a deal like RCEP.
What is RCEP?
The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement in the Asia-Pacific region between the ten member states of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and their five FTA partners (Australia, China, Japan, New Zealand, and South Korea).
It is widely accepted that the Indian agricultural industry is not ready for a trade deal like RCEP. Why is that?
State of the Indian Agricultural Industry
India is one of the largest food producers in the world. A fundamental problem with the industry is the poor state of the economics of the industry. The growth rate of the industry was at an average of 2.9 per cent from 2014 to 2019. Rural wages grew at an estimated 3.8 per cent year-on-year in December 2018. Factor in the rate of inflation, at 1.5 per cent, and the real rate drops down to 2.3 per cent.
Not enough has been done in India to educate farmers about maintaining soil health. While several policies have been sporadically implemented, the majority of farmers over-crop their soils and deplete their nutrients, leading to low agricultural output. The solution suggested for this is to use fertilisers. High Yielding GMO seeds have been pushed by the government since the Green Revolution to overcome this issue but that comes with its own problems.
Input costs of seeds, fertilisers and biocides are heavily taxed and hence raise the cost of these to the farmer. While we now know that chemical fertilisers and pesticides are harmful to consumer health, unfortunately the majority of the farmers in India still practice these methods of farming. Therefore high input costs for farmers is compounded by the low Minimum Selling Price for the produce set by the government leaving many farmers debt-ridden.
Lack of proper irrigation for farms is another issue. Majority of the land owned by the farmers in India are economically unviable, small and scattered holdings. This means that adequate irrigation cannot be assured to all plots of land. This means that the success of crops is highly linked to the state of the monsoon which is grossly unsustainable and unpredictable. A chance failed crop spells disaster for farmers in such a scenario.
Storage facilities in rural areas are either totally absent or grossly inadequate. Under such conditions the farmers are compelled to sell their produce immediately after the harvest at the prevailing market prices which are bound to be low. Such distress sale deprives the farmers of their legitimate income. Inadequate transport systems further compound this issue as farms are not not well connected to centralised hubs forcing farmers to sell their produce in local markets at low costs.
These and many more issues fundamentally plague the agricultural industry. Now let us examine why a deal like RCEP could spell disaster for farmers given the state of affairs.
What are the conditions of RCEP?
RCEP requires Free Trade Agreements between all member countries. While this means lower import duties for goods traded between countries it does not circumvent Non Tariff Barriers(NTBs). In the case of agriculture, NTBs include the base standards for the production of crops acceptable by a market. Because these standards are extremely high for countries like India, Indian products face high NTBs, as well as technical barriers in Japan, Australia and New Zealand, making exports difficult. At the same time, NTBs are lower in India. This means that while other countries will be able to flood Indian markets with cheap produce, Indian farmers will not benefit because these new markets are not opening up to them. This will further drive down the market price of produce in the markets, stunting the already slim margins of the farmers.
This is might be a simplified take on RCEP dilemma in India but it highlights the core issues of the deal with respect to the state of the Indian agricultural industry. The development of the agricultural industry in India has been neglected for decades while countries around us have made great strides in this respect. The inability of the industry to produce food at the same standards as its potential trading partners has held India back from joining the RCEP. In a globalised world, issues like this can hold back the economy more than ever.
Without even joining the RCEP deal, India is already feeling the repercussions of its neglect in the agricultural industry. India’s agricultural exports have declined to $33.87 billion in 2016-17 from $43.23 billion in 2013-14; import of agricultural commodities (including plantation and marine products) in 2016-17 rose to $25.09 billion from $15.03 billion in 2013-14.
Systemic, fundamental efforts need to made by the government to boost the agricultural industry before we can even think of disturbing this precarious balance we have going on right now. It may even take decades before we could revisit a proposal like RCEP for the agricultural industry.
Photo Credit: PTI