Govt okays 100% FDI in tea plantations

New Delhi: The government has approved 100-per cent foreign direct investment (FDI) in tea plantations to boost the sagging fortunes of the industry, plagued by slump in prices.

The approval, which came during a meeting of the union cabinet, was on the condition that the foreign company will divest 26-per cent stake within a period of five years to an Indian company, Union Parliamentary Affairs Minister Pramod Mahajan said.

Further, state government approval has to be taken if there is any change in the present pattern of land use.

Official sources said: "FDI in tea will lead to faster development of the sector. We have, therefore, allowed up to 100-per cent FDI in tea plantations, subject to compulsory divestment of 26-per cent equity in favour of an Indian partner or public within a period of five years."

Earlier, the Consultative Committee on Plantation Association had suggested that foreign shares should be restricted to 74 per cent, and United Planters Association of South India had said that it could be considered even up to 100 per cent.

As a major part of the Indian tea is produced in backward regions like Assam and other states of the northeast, investment there will get a boost with the FDI nod, the sources said.

FDI in the sector has been cleared as tea cannot be categorised as any other agricultural crop because it requires high investment and long gestation period. With stiff global competition in the external market, it is important that investment in this sector should be encouraged. This is imperative for adopting global technology, managerial skill and marketing techniques, they added.

The clearance comes at a time when prices have touched abysmal lows, much below the cost of production and the industry is in need of a much-sought-after stimulant. While the global output has shown an upward trend with new producers and exporters entering the fray, prices have slumped.

Correspondingly, Indian prices and exports have also taken a beating and the industry and government are trying ways and means to shore up the bottomline.