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Govt may allow FDI in tea plantations

Partha Ghosh

The government is planning to make an exception in its foreign direct investment policy for the plantation sector, and allow fresh foreign investment in tea plantation companies.

A policy is at present being drafted and is likely to be forwarded by the group of ministers on FDI headed by finance minister Yashwant Sinha to the Union Cabinet.

Earlier, the issue of allowing fresh foreign investment in the plantation sector was sent back by the Cabinet for further deliberation by the administrative ministries and the group of ministers, according to an official source.

"We have to understand that tea plantations were historically owned by foreign companies as a legacy of the British rule. In 1977, under the Foreign Exchange Regulation Act (Fera), when all foreign companies were asked to reduce their shareholding, foreign owners of tea plantations brought down their shareholding to 74 per cent. But there is an increasing feeling that today if we do not allow foreign investment, these plantation companies will find it difficult to grow," the source said.

This, however, does not apply to other plantation companies growing rubber and coffee because most of them are Indian-owned and smaller in size. They could raise money from the domestic market to expand their businesses, the source pointed out.

In the past, proposals to allow fresh funds in the plantation sector have been turned down by the Cabinet, sometimes even by the commerce ministry, which is the administrative ministry. However, deliberations have continued on opening up the sector.

If the government finally permits fresh foreign investment in tea plantations, it will pave the way for several Indian and foreign companies to expand their business in India. One major beneficiary will be Unilever, which has shown interest in the domestic tea business.

Unilever acquired Rossell Industries in 1999-2000. Foreign direct investment was permitted because there was only a change of equity from one foreign company to another, and no fresh acquisition was involved.

There are other multinational firms dealing in retail packaged tea and tea through vending machines that may be interested in having their own plantations, or at least a direct stake in existing tea gardens. Indian tea garden promoters can also look at offloading their shareholding or infusing fresh funds through the FDI route.

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