This fascinating and bizarre looking creature is the caterpillar of the Giant Red Eye (Gangara thyrsis), a species of skipper butterfly.
Gangara thyrsis, commonly known as the giant redeye, is a species of butterfly belonging to the family Hesperiidae. It breeds on a number of palm species.
The larva is greyish-white with a few ochreous dorsal spots and marks. From the body, a loose shaggy filamentous clothing consisting of pure wax is excreted, but which is easily rubbed off when handled, leaving the larva quite naked, which in that form is blood-red in colour.
They make a slit in the frond and roll a part of the leaf around themselves into tunnels to hide inside and do consume the leaf eventually.