G. Srinivasan

New Delhi, Dec 31

The decision by the Cabinet Committee on Economic Affairs (CCEA) on December 29 to set up the Special Purpose Tea Fund (SPTF) under the Tea Board for funding replantation and rejuvenation (R&R) programmes is primarily designed to improve the age profile of tea plantations.

Crippling factor

A crippling factor impeding the tea industry is the plummeting productivity due to the ageing of tea bushes. Plantation experts contend this senility has contributed considerably to a high cost of production and deterioration in quality. Hence, there is a need to tackle this issue point blank so as to boost global competitiveness and ensure viability of tea operations.

Studies made by the Tea Board show that 38 per cent of all tea bushes have crossed economic life of 50 years and another 9 per cent are in the age-group of 40 to 50 years. Since the 1970s, the Tea Board has been implementing a scheme of R&R. In spite of a subsidy at 25 per cent of the unit cost, the cumulative area replanted has been a meagre 63,000 hectares with an average of 1,789 hectares replanted per annum. The reason for the tepid rate of replanting is not far to seek as the growers were hit by resource crunch following the prolonged spell of recession in the industry.

Subsequently at the stakeholders' conference on tea held in 2004, a proposal to set up a special purpose fund for R&R was mooted.

Areas under R&R

The estimated total area to be replanted and rejuvenated over a 15-year span is 2.13 lakh hectares replantation in 1.71 lakh hectares and rejuvenation in 0.42 lakh hectares. Of these areas to be subjected to R&R, 46 per cent is in Assam, 28 per cent in West Bengal, 22 per cent in South India and the rest in the other tea growing areas. The total estimated cost is Rs 4,761 crore: Rs 4,360 crore on replantation and Rs 401 crore on rejuvenation.

Officials told

Business Line

here that the scale of R&R would be stepped up significantly 6 and 4.5 times respectively over extant levels. This is to be scored by ensuring availability of funds: long-term loans and subsidy. Replantation would increase from the present average of 1,789 hectares per annum to 11,359 hectares per annum and rejuvenation from 625 hectares per annum now to 2,814 hectares per annum.


Currently, bank finance to the tea industry is mainly for short-term lending and banks are reluctant to provide term loans beyond 7-10 years at an uniform rate of interest, whereas the minimum length of the loan span for replantation should be about 13 years with a 5-year moratorium on repayment of principal.

Hence, it is proposed to set up the SPTF to raise the requisite long-term funds from the banking sector through a structured borrowing vehicle.

The CCEA gave its approval for pegging the subsidy at 25 per cent and adoption of a funding pattern of 25 per cent promoter's contribution, 25 per cent subsidy from the Government and 50 per cent loan from the SPTF. Sources said the SPTF would borrow funds from the banks and financial institutions at one per cent above the extant G-sec rate and would on-lend to growers at 0.5 per cent over the borrowing rate.

Loans to be raised by the SPTF and advanced to growers would be repayable in eight equal instalments beginning from the sixth year of sanction, with a moratorium of five years on the repayment of principal.

The required capital infusion in the SPTF by the Central Government is estimated at Rs 130 crore.

The sources said the estimated outlay for the remaining part of 2006-07 and the duration of the 11th Plan has been reworked as Rs 567 crore capital infusion of Rs 91 crore in the SPTF plus subsidy of Rs 476 crore.

It is stated that the SPTF would be professionally managed and many activities such as appraisal of the applications would be outsourced, kindling hope that the organised tea industry, as also small tea growers would find the new dispensation dispassionate.

(This article was published in the Business Line print edition dated January 1, 2007)
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