1. INDIAN TEA ASSOCIATION
CENTRAL BUDGET 2011-12
PRE-BUDGET MEMORANDUM :
ISSUES RELATING TO TEA INDUSTRY
Kumar Saurabh
Current Tea Scenario
Production
The cost of production of Tea in India continues to be the highest among all tea producing
countries. The high cost of production in India has been a critical factor impeding India’s
competitiveness of India tea.
The Tea plantation industry has passed through difficult times since 1999 when average price
realizations in the auction centres fell sharply leading to losses across industry and closure of
several tea estates in North and South India. Fortunately the situation has improved from 2008.
This is welcome scenario as this will enable the tea plantation industry recoup accumulated
losses and to make fresh investments for future growth.
Tea production in 2009 touched 981 million kgs, 2010 will see a sharp decline to around 960
million kgs due to adverse weather conditions and virulent pest attacks. This will adversely affect
the revenue stream of tea companies and further impact CoP.
Exports
2010 is expected to see higher exports. During January to October 2010 exports are up by
around 6 mkg vis-à-vis 2009. The ITA with the support of Tea Board is making strenuous efforts
to increase exports.
Tea Industry acknowledges the vital role of DEPB (Duty Entitlement Pass Book) & VKGUY
(Vishesh Krishi Gramin Udyog Yojana) in promoting tea exports. In the fiercely competitive
export market continuance of DEPB & VKGUY is called for in order to sustain competitiveness of
Indian tea exports.
Prices
It would be noted that the gains in prices from 2008 after a prolonged recession have been
largely offset by significant increases in the cost of key inputs such as fertilizers, coal, fuel, gas
and electricity.
A major component of the Cost of Production is the Cost of Employment which includes Social
Welfare Cost on account of statutory provisions like water supply, medical, primary education,
etc. to be provided to workers in India under the Plantation Labour Act. In addition to rising cost
of amenities there is significant increase in the wage cost which is periodically revised through
bilateral negotiations.
While the Tea Industry and the Tea Board has already taken active measures towards reviving the Tea
sector, there is need to address certain key issues in the forthcoming Central Budget 2011-2012 towards
laying a foundation for sustainable growth which will help protect employment in this highly labour intensive
industry.
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2. Issues Justification Suggestions for Consideration
DIRECT TAX
1. Section 33AB The provision was first introduced in the The ITA is aware that the
of the Income Income Tax Act in 1985 keeping in view Government of India in presenting
Tax Act 1961: the volatility and cyclical nature of Tea the Direct Tax Code seeks to
prices --- given that Tea is largely traded at consolidate and amend laws
Migration to the commodity level and susceptible to the relating to Direct Taxes ---
Direct Tax vagaries of global Demand:Supply. The including Income Tax --- towards
Code intrinsic logic was that Tea Companies an efficient and equitable Tax
should be induced to set aside profits in system. The Government
good years for deployment in development furthermore has undertaken a
activities in relatively poor years. Section comprehensive review of Tax
33 AB which had been initially introduced incentives.
in respect of Tea, currently covers Tea, While the general philosophy of
Coffee and Rubber providing a deductible the Direct tax Code of migrating
allowance of upto 40% pre-Tax profits. from profit linked incentives to
investment linked incentives is
Section 33 AB provisions have also appreciated, ITA would submit
received endorsement in the Report of the that the Sec.33AB provisions,
Committee on Competitiveness of the in effect, clearly mandate that
Indian Tea industry which had been investments in key
constituted by the Commerce Ministry developmental activity have to
under Shri S. N. Menon, former be undertaken from the
Commerce Secretary, Government of deposits made by tea
India. companies (out of pre-tax
profits) with the NABARD.
The ITA would therefore
request the Government of
India for incorporation of
Section 33 AB provisions in the
forthcoming Direct Tax Code.
INDIRECT TAX
2. Continuance of In order to give thrust to value addition and The Association would request
concessional quality upgradation the Government the Government to extend
Customs Duty extended the benefit of concessional concessional duty for the said
on Specified import duty @ 5% on certain plantation machinery items to ‘Nil’ for a
Tea Machinery
machinery vide Notifications No. further period of 3 years from
Items
175/2003-Customs and No. 176/2003- 1st April 2011 with ‘Nil’ Special
Customs both dated 10.12.2003. The Additional Duty.
Government thereafter has been
extending the benefit every year. The last
extension of the concessional basic
Customs Duty of 5% has been done vide
Notification No. 21/2010-Customs dated
27.12. 2010 which remains valid upto
31stMarch 2011 for the following items:-
Machinery for Tea Plantation Sector
(i)
Tea bagging machine, falling under tariff item
8422 30 00
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3. Issues Justification Suggestions for Consideration
(ii)
Tea packaging machine, falling under tariff
item 8422 30 00
(iii)
Colour sorting machine, falling under sub-
heading 8433 60
(iv)
Tea leaf cutting-rolling machine, falling under
tariff item 8438 80
(v)
Mechanical harvester, falling under tariff item
8433 59 00
(vi)
Tea pruning machine, falling under tariff item
8201 60 00
(vii)
Mist blower, falling under tariff item
8414 59 20
(viii)
Sprayer, falling under tariff item
8424 81 00
(ix)
Rotary Sifter falling under tariff item 8433.60
(x)
Lateral Cyclone Winnower falling under tariff
item 8433.60
(xi)
Dividing Bypass falling under tariff item
8438.80
After a long recessionary period the
industry is now poised for growth and
development. At this time the industry
should be supported with continued
concessional facilities as it will enable tea
industry to upgrade processing
infrastructure particularly towards value-
addition.
Now that peak rate of import duty of all
items have considerably reduced since
2003 when 5% concessional import duty
was effected, it would be helpful to the tea
industry if the concessional duty for the
above machinery items is reduced to ‘Nil’
towards containing the cost of the final
product and make Indian tea globally
competitive in export market.
3. Concessional In the world market the use of Tea Bags Towards a major thrust in
Import Duty and Multiwall Paper sacks is rapidly exports with particular
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4. Issues Justification Suggestions for Consideration
of Certain increasing. Demand for Filter Paper, emphasis on value-addition
Other Vital Nylon Cloth, etc. in Tea Bags has and quality upgradation the
Items therefore been continually increasing. Association would request The
Total incidence of Duty on importation of Ministry of Finance is urged to
Filter Paper for use in Tea Bag under is take appropriate action towards
very high (36.2% with Basic Duty 16% & fully exempting Customs Duty
other incidental duties), making the final on the Filter Paper.
product non-competitive in the
international market. Filter Paper is a critical
requirement in Tea Bag. It would be further urged that
The following items are of vital importance import duty of Nylon Cloth,
in order to scale up value addition and Multi-Wall Paper Sacks, Kraft
exports : Paper and Tissue Paper should
also be made ‘Zero’.
a) Filter paper (falling under tariff item 4823.20)
b) Nylon Cloth for Tea Bags (tariff item
5911.90)
c) Multi-Wall Paper Sacks (tariff item 4819.40)
d) Kraft Paper (tariff item 4810.39)
e) Tissue Paper (tariff item 48.02)
These products are either not available in
the indigenous market or are of very poor
quality.
Since the Filter Paper continues to be
unavailable from domestic manufacturers,
total Customs Duty exemption on import of
OTHER FINANCE RELATED ISSUES
4. Continuation of The Orthodox Subsidy Scheme, launched The Association would request
Orthodox in January 2005 to boost production of the Government to allocate
Subsidy Orthodox Tea, has helped in correcting the adequate funds to the Ministry
Scheme product-mix and enabled availability of of Commerce to enable Tea
more Orthodox variety of teas for Board to disburse fund for
sustaining the Indian exports. Due to non- backlog period of 2008-09 &
release of fund by the Ministry of 2009-10 and also to cover 2010-
Commerce Tea Board is yet to release the 11 & the balance period of 11th
subsidy for 2008-09. Plan Period.
The Ministry is also requested
Being appointed by Tea Board M/s A C to extend the Orthodox
Nielsen has strongly recommended the Subsidy Scheme for the 12th
need for continuance of the Scheme for Plan Period.
the balance period of 11th Plan Period and
extend for the 12th Plan Period.
5. Sharing of The high cost of production (CoP) in India (i) ITA would request the
Social Cost has been a critical factor impeding India’s Government to evolve a
competitiveness. A major component of suitable mechanism whereby
the CoP is the cost of employment which this high social welfare cost
includes social welfare cost. Welfare cost could be substantially
inclusive of the concessional value of food mitigated.
grains supply to tea estate workers work
(ii) Moves should be initiated to
out to more than Rs. 8/- per kg. of made
examine whether various
tea.
Government schemes relating
to :
• Sanitation
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5. Issues Justification Suggestions for Consideration
The Inter Ministerial Committee (IMC) (Total Sanitation Campaign)
recommended sharing of Social & • Medical facilities (through
Infrastructural cost between Industry and NRHM)
Central & State Government in the ration • Education (through Sarva
50:40:10. Subsequently another Shikshya Abhijan)
Committee under the Addl. Secretary could be extended to the tea
(Plantation), MoC examined ways to tailor plantation sector.
& implement various Government
Schemes towards defraying cost in certain (iii) Substantial expenditure is
areas like medical facilities, education, incurred for construction of
sanitation, conservation, drinking water Housing for workers. ITA would
etc. suggest for re-introduction of
the Loan-cum-Subsidy Scheme
based on current cost of
construction, as per the
Government specifications, of a
worker’s quarter.
(iv) Food grain subsidy is a high
cost component. Government is
urged to consider issuing
foodgrains at BPL rate for at
least the non-working segment
of the dependent population
residing in the estates.
6. Sharing of In order to restore confidence and morale The ITA represented to the both
Security of the management and workers of the State & Union Government for
Costs Tea gardens in Assam in the midst of high financial support towards maintain
insurgency, the Association raised a the Security Force.
Security Force (namely ATPSF) in 1993 as
- The Government of Assam,
per State Government’s advice.
thereafter, approached the
Union Home Ministry for
The Government of Assam has
additional funds to support the
restructured the ATPSF to form the Assam
State Force deployed in the
Industrial Security Force (AISF) in 2009 for
Tea sector.
giving permanency and conferring higher
- The Union Home Ministry also
pay structure in the line with the Assam
recommended this case to the
State Police under which the annual cost
Finance Ministry.
per unit has gone up from Rs 10.4 lakhs to
around Rs 28 lakhs. The Finance Ministry is
understood to have conveyed its
The annual aggregate expenditure for the inability to provide funds under
users as a whole works out to around Rs the Security Related Expenditure
30 Crores with the incidence of cost (SRE head) stating that such
between Rs 2 to Rs 3 per kg of made tea. funds cannot be made available
This is unsustainable for the tea for a private force.
gardens.
It is clarified here that the AISF is
a Government Force raised by
the State Government and
deployed to the tea industry.
The issue of financial support
for the Force, therefore, needs
sympathetic review.
It is to be mentioned here that the Indian tea industry is serving National priorities by way of –
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6. • Generating income and livelihood directly or indirectly for more than 10 million people in
the country
• Women account for 50% of employment
• Supporting socio-economic development in remote and under-developed regions such as
the North-East.
The Association trusts that the above submissions would be favourably considered by
the Ministry of Finance, Government of India for the Union Budget 2011-12.
15.12.2010
SP:RNC: central-budget for 2011-12
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