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May 19, 1998


Kerala reels under impact of sanctions

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D Jose in Thiruvananthapuram

India's nuclear tests of May 11 and 13 have impacted heavily on the economy of Kerala.

Market analysts indicate that the worst hit sectors will be exporters of spices, cashew, seafood and software.

Meanwhile, the pepper market -- another high-intensity Kerala industry -- has reacted with increasing nervousness to news of the sanctions, having dropped a massive Rs 1,100 per quintal in the last seven days. The fall was sharpest on Wednesday, registering a Rs 700/quintal dip as soon as America and Japan announced sanctions.

Pepper is highly sensitive to American moves, since the USA is the single largest consumer of the commodity. In 1997-98, India (primarily Kerala) exported 1,600 tonnes of pepper, valued at Rs 3,900 million.

The braver segments of Kerala's pepper industry believe that the commodity may not fall under the ambit of the sanctions, reasoning that America cannot live without the product.

"The US will find it difficult to impose sanctions, most especially this year since its own stock position, as well as the availability of the commodity in the international market, are not too comfortable," a source within the state's pepper industry argued.

Equally uncertain about the exact impact of sanctions is the seafoods industry. "We are in touch with importers in the States to find out what precisely the implications are," said a spokesman of the Seafood Exporters Association.

The SEA spokesman agreed that if sanctions do apply to import of Indian seafood by the US, then it would break the back of the seafood processing industry in Kerala which is already reeling under bans imposed by the US and the European Union on certain varieties.

Between them, America and Japan account for 69 per cent of seafood exports from India. The European Union accounted for 17 per cent of India's exports, valued at Rs 420 billion.

In an indentical hotspot is the cashew sector. America accounts for a whopping 38 per cent of all of India's cashew exports -- the figures for 1997-98 being 2,900 tonnes -- making it the single largest consumer of the commodity.

Unlike with pepper, where America is heavily dependent on Indian supplies, the situation is different with cashew. Industry sources believe the US will have no problem finding new sources of the product, since the world's major cashew producing centres are even now in the process of expanding their processing capacity. India, however, will face problems finding alternate markets, sources say.

A similar state of panic has gripped the Export Processing Zone in Kochi, and the Electronics Technology Park in Thiruvananthapuram -- both boom centres in a burgeoning software export industry.

The impact of the sanctions on the natural rubber industry is yet to be assessed. In the event, the industry is already reeling, with prices falling drastically on account of recession in the automobile sector, and devaluation in the currencies of several West Asian nations that also produce rubber, and are India's leading competitors.

Kerala, more perhaps than most other states, is quick to feel the impact of international developments since its economy is heavily dependent on export earnings and remittance by NRIs.

There has been a sharp fall in Gulf remittances in recent years, following large-scale repatriation of non-resident Keralites from there. In the last 12 months alone, over 46,000 people are estimated to have returned to the state following tightening of travel rules by some Gulf countries.

These developments have manifested themselves as acute recession in various sectors of the Keralite economy, including real estate and constructions.

This in turn has resulted in revenue losses to the government, with earnings falling short by Rs 90 billion in the 1997-98 fiscal year alone.

This, in turn, affects developmental work -- especially those projects udnertaken with foreign assistance. The immediate impact of the sanctions is liable to be felt by 18 small hydro-electric projects planned in collaboration with China. In fact, a Memorandum of Understanding was signed by Power Minister Pinarayi Vijayan only recently.

Another developmental project facing the axe is the Goshree Project, envisaging the linkup of three populous islands in Kochi. The project, which is ready for implementation, was planned with Japanese aid -- which has now been denied.

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