The Hindu Business Line : 100% FDI plan in tea plantation raises queries

THE decision by the Group of Ministers to recommend 100 per cent foreign direct investment (FDI) in tea plantation to the Union Cabinet for implementation has raised a few queries.

Even as per the extant guidelines of the RBI under the provisions of FERA, 74 per cent foreign equity is allowed in the tea plantation industry, the Tea Board was informed by the Department of Commerce almost two years ago about allowing 100 per cent FDI in tea plantation industry, official sources told Business Line here.

However, opinion on this issue from the industry was divided with Consultative Committee on Planters Association (CCPA) favouring the status quo, while the United Planters Association of South India (UPASI) maintained that this could be considered up to 100 per cent.

In the meanwhile, the Tea Board expressed itself that tea plantation should not be categorised as ordinary agricultural crop since cultivation of tea demands enormous outlays and entails long gestation period. With fierce external competition in the global market and in the internal market with the removal of remaining import curbs, the Tea Board stated that investment in this sector should be encouraged along with global technology, managerial and marketing skills.

Sources further spelt out that liberalisation of FDI should in fact contribute to faster development in the backward regions of the country where tea is cultivated especially in Assam and the North-East. It is in this context that the Tea Board suggested to the Government that the proposal to permit 100 per cent FDI in tea plantation might be considered, subject to compulsory disinvestment of 26 per cent equity in favour of Indian partner/public within a span of five years and subject to approval of the State Government concerned in relation to future land use.

It is important in the wake of the experience gained from disinvestment of public sector companies how the new management disposed of the assets of the bought company or how the board of the new management decided on the future course of the companies reserves capital or other investment priorities.

Since in the plantation sector, the 100 per cent FDI would let the investors do what they desire to do, the sources said that the moot question is whether such FDI up to 100 per cent with compulsory disinvestment rider and with stipulations as to the future use of land could be best insurance under the automatic route or through Government approval?

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