India may gain 49,280 crore from CEPA pact with EU

Business Standard, January 27, 2009
By Rituparna Bhuyan

A European Commission-sponsored study has projected that India will gain more from the proposed Comprehensive Economic Partnership Agreement (CEPA) with European Union (EU).

While the study points out gains in specific sectors like textiles, it also projects possible job losses because of adverse impact of the agreement on sectors like dairy and food processing.

The study, which is currently in the form of a draft, will be finalised at a meeting in Brussels on January 29. It projects the CEPA could add ¤4.9-7.7 billion (about Rs 31,360-49,280 crore) to the Indian economy, depending upon four different scenarios of relaxed trade conditions. The study projects that gain for the EU will at most be ¤4.4 billion (Rs 28,160 crore). The benefits will accrue through freeing of merchandise trade tariffs, greater market access of services sector and easier investment norms in the CEPA.

The Netherlands-based research organisation ECORYS as well as India-based Centre for Trade and Development (CENTAD) and Consumer Unity & Trust Society (CUTS) jointly carried out the study.

With multilateral trade talks not progressing because of differences between the developed and developing nations, regional trade agreements giving preferential trade has emerged as a trend.

The EU has a share of over 21 per cent in India’s exports. But from the EU perspective, the trade bloc imports less than 2 per cent of its total requirement of goods from India. The CEPA is expected to lead to greater movement of goods, services and free flow of investments between both the sides.

On the trade front, the study projects that the agreement could add 5 to 10 percentage points to India’s overall export growth depending on what amount of goods are freed for zero import duty trade.

Pointing out towards social impacts of the agreement, the study project that wages of skilled workers could increase in the range of 0.78 to 1.6 per cent. However, the study notes that even though wages of unskilled Indian workers may also increase (0.8 to 1.5), some of them could loose jobs.

“The reallocation of labour — especially in the short-run — may lead to lower levels of job security in the short-run, but higher levels of job security and also quality of work in the long-run,” the study notes.

According to the study, apparel sector in India could be one of the main beneficiaries of the CECA. In the apparel sector, both output and income is expected to increase considerably. “The EU is expected to specialise further in high value-added textiles, reflected by the slight increase in prices in the EU, while the enormous increase of Indian output can be attributed mostly to increased volumes of lower value added products,” the study said.

However, in the automobile sectors (including component manufacturers) the study projects marginal or adverse impacts. For example, Indian exports from this sector is likely to increase by 7 to 13 per cent due to the agreement but imports will also increase in the range of 30 to 47 per cent. Some job losses are also expected in the automobile space as inefficient producers will be wiped out.

CONCERNS FOR THE CEPA: The projected benefits of the CEPA notwithstanding, concerns are being raised on what is being touted as the biggest agreement of its kind for India.

Food and livelihood security experts point out towards the possible threat to 80 million people, dependent on the dairy sector. “The EU is a milk surplus region and provides large subsidies to producers. The agreement could mean cheap milk and milk products coming into India, adversely impacting dairy workers,” said Devinder Sharma, chairman of New Delhi-based Forum for Biotechnology & Food Security.

Experts feel that the Indian food processing industry could be adversely impacted because of cheap imports.

Even for a sector like textile, experts have earlier pointed that it is not ready to withstand international competition in the domestic market. The sector has received several fiscal relief measures from the government in the past, which included a series of measures in the past two months.

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