That's how local producers feel about duty-free Lankan imports, but it had to come sometime
IT'S the cup that no longer cheers. A recent decision to allow duty-free import of tea from Sri Lanka has local producers up in arms against the government, alleging unfair competition and threat to the very survival of the 150-year-old industry. What's worse, the decision has come without any reciprocal arrangement. Therefore, the industry laments, the joint move by the Prime Minister's Office and the external affairs ministry has given Sri Lankan producers an unfair advantage.
In fact, the tea industry has been fighting the move which aims to facilitate free trade among saarc countries. Says Vinay K. Goenka, chairman of the Consultative Committee of Plantation Associations (ccpa) and of the Indian Tea Association (ita): "A level playing field is essential in any competitive industry. The removal of all duties combined with the lack of competitive restrictions will mean creating unfair, unequal and unfavourable competition. This will lead to cheaper and inferior tea flooding the Indian market and will hit the domestic tea industry's bottomline."
Why should a Rs 4,000-crore industry which produces close to 865 million kg of tea every year be on the defensive against a tiny island nation producing just 277 million kg? Reasons: poor tea exports by India and sickness within the industry.
India's production is indeed the world's highest-865 million kg. Of that, though, 660 million kg is consumed here, leaving an exportable surplus of 24 per cent. But Sri Lanka exports over 90 per cent of its crop and enjoys a 20 per cent share of the world market, against India's 14 per cent.
Says Chandrachur Dasgupta of the Indian National Plantation Workers' Federation: "We might end up losing much of our dollar export earnings, holding on to large quantities of unwanted varieties from other countries. So far the information is that for intra-saarc tea imports, the barter system, not payment in hard currency, will prevail."
Keeping in mind the large-scale domestic consumption, the Centre had removed excise duty on tea in 1993. On June 1 last year, finance minister Yashwant Sinha reintroduced excise duty on packaged and branded tea. This step, says the Tea Packeters Association of India, has led to an 8.3 per cent slide in the packaged tea market in the post-budget months itself. As if this was not enough, the government decided to allow free access to Indian markets for Sri Lankan and Bangladeshi tea.
On August 1, 1998, in a notification issued under the saarc Free Trade Agreement, the commerce ministry removed all quantitative restrictions on some 2,000 items that could be freely imported from saarc nations. Tea was also on the list. Alarmed, the ccpa and the ita wrote to the prime minister on August 19, pointing out its disastrous fallout on the industry. "The government must remove central excise duty on all teas and examine the possibility of removing tea from the list of freely-importable items from saarc countries and if total removal of quantitative restrictions on imports is not feasible then appropriately raise the customs duty (basic plus countervailing) to ensure a level playing field for Indian industry," Goenka said in his letter.
Between August and December 1998, the Centre did not react and yet, in a reversal of policy, has now decided to allow duty-free imports. Says a leading Assam planter: "To keep the smaller neighbours in the subcontinent happy, the government has neglected the disastrous consequences for the industry, especially in sensitive regions like Assam." Adds Pradip Bhattacharyya, ita additional secretary-general in Guwahati: "Import of cheaper teas will depress prices which would, in turn, affect the ability of the industry to reinvest. This will lead to retrenchment and affect Assam's economy."
Supporting the move, Sri Lanka argues that since India's exports have lately been stagnant, a joint export strategy could help both the countries fight Kenya, the biggest exporter, in the world markets. Secondly, free flow of Lankan tea would put pressure on the high prices at the Indian auction centres, which are higher than the current world prices, and help the consumer.
ita sources point out that Sri Lanka is also a competitor in exports and joint export strategies are ruled out. As for auction centre prices, there would be little impact as the centres usually handle cheaper ctc varieties, whereas Sri Lanka would send its orthodox varieties. There would thus not be much impact on these prices. Already, some Sri Lankan produce is used for blending in export varieties and there is no room for more.
Blending of Lankan varieties, it is also feared, will affect exports. Says a spokesman: "Importers have very strict specifications and criteria, any dilution of which will create complications. Tea drinkers abroad have their own well-defined preferences for certain tastes and flavours. Any compromise in quality would be unacceptable." Indian industry maintains quality above the iso 3720 specification, which is not the case with other tea producing countries in south Asia. In particular, highly prized Darjeeling varieties would be compromised if blended with Sri Lankan unorthodox and Nepal's high-grown varieties. This could accentuate the sickness in Darjeeling's gardens.
Industry trade unions allege that the proposal has been supported by a section of Indian planters, like Tata Tea, who have shifted their area of operations to Sri Lanka due to insurgency in the northeast and also by leading tea packeters like Brooke Bond Lipton and Hindustan Lever. Five years ago, then Levers chairman S.M. Datta had plumped strongly for tea imports. Since it controls over 80 per cent of the packaged tea market, it would be cost-effective for the company to get tea at cheaper rates for blending and then re-exporting.
If the Sri Lankan and Bangladeshi varieties are unsuitable for blending with high-priced varieties, their circulation in the internal market would affect the crop of Dooars, Terai, Cachar and south Indian plantations, affecting about a million people's livelihood. Tea is the backbone of the Assamese economy, employing 10 lakh people in 900-odd estates. The money invested in the industry everyday, Rs 1.5 crore-odd, provides the lifeline to several townships and around 20,000 small tea growers.
But many feel the industry is ignoring the realities in the new liberalised wto trade regime. Says H.P. Barooah, noted Assamese planter: "The move may have come four years too early but the truth is we cannot operate in isolation any more. This will give us an opportunity to become more efficient." Even Monojit Dasgupta of ita admits it's the right approach. Says he: "The industry is aware that by 2003, there would be no protection once the wto rules are implemented. Our objection is to the suddenness and the unfairness of the arbitrary decision." The industry is already tightening its belt, increasing productivity and cutting cost to prepare itself for free trade. The millennium jolt may now leave it gasping.