Govt mulls revival package for tea companies, may include one-time grant

The Centre is planning to come up with a financial revival package for the ailing tea companies which have been hit hard owing to mounting costs and lenders expressing their unwillingness to lend to these firms.

The package, which may involve a one-time grant of Rs 300 crore towards all tea companies is aimed to relieve the financial stress to some extent as well as improve the cash flow situation. Subsidies, like the orthodox and replantation subsidies, which in some cases, have been pending for over five years can also be given to the tea firms.

Besides, a relaxation of 1-1.5 years can also be given to the plantation companies to enforce the Labour Code once passed by the Parliament.

“A revival package is in the making and we are consulting the industry as well. An increase in wages, as a result of the Labour Code, will further complicate matters for the already stressed tea companies and so some help is needed”, A.K. Ray, deputy chairman at the Tea Board of India, told Business Standard.

Tea Board, the regularity body for the tea sector, functions under the union commerce ministry.

The package is likely to be sanctioned during April-May this year.

It comes at a time when several large companies like McLeod Russel, Warren Tea, Jay Shree Tea and others are selling their estates to pare debt aimed at bringing in financial prudence and input costs are likely to rise as the Plantation Labour Act (PLA), 1951 gets repealed giving way to the Labour Code.

Sources said the tea companies face a challenging financial situation as most of them have been incurring losses for over years and some are seeing a drastic fall in profitability owing to the fact that costs rose by 15-20 per cent in the last five years while prices climbed only 5-7 per cent. Banks have also unwilling to extend lines of credit.

For instance, during 2013-14, Warren Tea made a net profit of Rs 20.24 crore while during 2018-19, the company ran into a net loss of Rs 15.92 crore. McLeod had posted a Rs 257.15 crore net profit during 2013-14 but came up with a net loss of Rs 4.42 crore in the last fiscal year.

In case of Goodricke, it had posted Rs 22.24 crore profit in calendar year 2014 but it shrank to Rs 9.49 crore during the financial year ended March 31, 2019. Rossel India too had posted a Rs 20.40 crore profit during 2013-14 which fell to Rs 0.57 crore in the last fiscal year.

Apart from the larger multiple estate companies, numerous single-estate plantation firms are up for grab in Assam and Dooars region in West Bengal.

Industry sources estimated that given the monetary situation with the tea companies, any increase in wages will lead to complete collapse of around 65 per cent of the total tea estates in West Bengal and Assam.

Currently, under the PLA, apart from a cash component which is around 50 per cent of the total wage, tea workers are also paid wages in kind which includes housing, sanitation, education, ration and others.

Company officials claimed that the kind component can be a maximum of 15 per cent of total wage and the new wage structure will be based on the Minimum Wages Act, 1948, which will lead to around 40 per cent effective increase in wages. On an average, wages alone account for around 40 per cent of the total input costs for a tea company.

“We have made our representations to the union commerce and labour ministry asking them to include the in-kind benefits in the definition of wages. Alternatively, in-kind benefits can also be provided only through government schemes”, Vivek Goenka, chairman at the Indian Tea Association, told this newspaper.

According to the Tea Board, the package can help tea firms by providing them with cash to opt for better plantation techniques and methods as well as improve cash flow and clear debts to an extent. Also, in case a relaxation of enforcing the Labour Code is given, it will also help tea firms adjust themselves to the new laws gradually.