Budget hopes: Tea industry seeks alternative to MEIS

The Indian Tea Association also wants a hike in incentives for the orthodox variety

The tea industry, which has been reeling under the pressure of rising costs outstripping price realisations in the past few years, is looking for some respite in the upcoming Budget.

An incentive scheme on the lines of MEIS (Merchandise Exports from India Scheme) for boosting exports and better incentives for growing orthodox tea are some of the measures the industry is looking forward to in this years’ Budget.

MEIS to go

According to Sujit Patra, Secretary, Indian Tea Assocation (ITA), there are talks of disbanding MEIS scheme as it is not considered to be WTO-compliant.

The MEIS is considered to be the most important export promotion scheme under which the government provides exporters duty credit of 2-5 per cent of their export turnover. It aims to offset infrastructural inefficiencies and the associated costs of exporting products made in India by giving a special emphasis on those which are of India’s export interest, have the capability to generate employment and enhance India’s competitiveness in the world market.

“Now that MEIS will be gone, some substitute needs to be in place. So, we have requested the government to do something immediately,” Patra told BusinessLine.

The high logistics cost and other input costs put India at a competitive disadvantage with other countries when it comes to exports.

Under MEIS, the Indian tea industry used to get 5 per cent as subsidy on the FOB (Free on Board) value. The high cost of production of Indian tea was, to some extent, offset through the subsidy . “It (5 per cent subsidy) is a big chunk for us. The cost of production of Indian tea is considered one of the highest, so it has to be competitive through these routes,” he said .

The ITA is now urging the government to constitute a committee to study the matter and see what other countries are doing to devise a way out.

Improving demand

There is an urgent need to boost tea consumption, both in domestic and export markets to shore up prices.

The Indian tea industry is passing through a tough period as the average cost of production has increased by a CAGR of nearly 10 per cent in the last 6-7 years. However, price increase has only been to the tune of one per cent.

Input costs

Wage costs account for nearly 65 per cent of the production cost for the tea industry and that has been rising “substantially” on year-on-year basis. This apart, cost of fertilisers, gas, coal, etc, too, has gone up in the last few years, inflating the overall cost of production .

“Wage costs have gone up substantially in the last few years and so has the cost of other input materials. If we can increase the demand thereby leading to higher consumption then the problem can be addressed to a great extent,” he said.

Switching to orthodox teas

The industry is also looking for incremental incentives to planters to move from CTC to orthodox to cater to export markets.

Orthodox tea accounts for nearly 40 per cent of the total demand for tea in the international market, with CTC accounting for another 40 per cent and the remaining 20 per cent being green tea.

Unlike Sri Lanka — which produces primarily orthodox — and Kenya, which produces primarily CTC, India produces both orthodox and CTC.

But the problem with orthodox tea is that it is difficult to manufacture and is cost-intensive.

Although it fetches better price than CTC, it is seen as a risky proposition given that India is predominantly a CTC-consuming country. So, unless there is some incentive to grow orthodox manufacturers would not want to go for it.

“In 2005, the government had instituted an incentive at the rate of 3 per kg of orthodox tea. But since then the manufacturing cost has gone up and cost differential between orthodox and CTC has also gone up, so we have requested government to increase the incentive,” he said.