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Government revives plan for 100 per cent plantations FDI

Partha Ghosh

The government, after close to a year, is attempting to revive the proposal to permit up to 100 per cent foreign direct investment in tea and coffee plantations.

A proposal to this effect was recently put up for consideration of the group of ministers on FDI, headed by finance minister Yashwant Sinha. The GoM has, however, deferred the proposal to a future date and the decision was conveyed to the Union Cabinet, which cleared a slew of FDI proposals last fortnight.

Sources said that the proposal sent to the GoM stated that 100 per cent FDI in tea and coffee plantations could be allowed under the automatic route, with a pre-condition that 26 per cent of equity be divested in favour of the Indian partner or public within a period of five years.

The scheme also included a provision, which imposed a bar on future land use change without the approval of the concerned state government.

However, the controversial nature of the proposal has forced the GoM to defer a decision for the time being. Hence, it did not form part of the FDI policy cleared by the cabinet committee of economic affairs at its last meeting. The sources, however, said the Cabinet discussed the matter at the meeting, and has advised the GoM to consider the matter further.

A proposal to increase the FDI limit in tea and coffee plantations came up around the middle of last year, when Unilever proposed picking up a 74 per cent stake in Rossell Industries Ltd, a domestic tea company promoted by YK Modi.

Objections were raised from several quarters, stating that foreign companies should not be allowed in the sector any further.

The government (as per the Fera notice of 1977) had barred further foreign investment in plantation companies, and restricted the FDI in each company to their prevalent levels.

Under the "carry-on-business" arrangement, the companies were advised to bring down their FDI levels to 26 per cent. Foreign holding in plantations including tea, rubber, coffee and cardamom was, therefore, restricted to 26 per cent.

Companies with NRI investments of more than 40 per cent for agriculture and plantation companies require special permission from the Reserve Bank. The facility for seeking RBI approval is made in the Exchange Control Manual, which does not prescribe an upper limit for FDI in companies dealing with plantations.

Subsequently, in June 2000, the government's proposal to allow 100 per cent FDI in the sector was first revealed by former secretary in the Prime Minister's Office (PMO), NK Singh, who reasoned that "if India did not allow foreign investments in these areas, it will end up as a net importer of plantation products."

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