Economy

COVID-19: Global financial crisis could cripple Indian tea industry

Centre and state governments should keep political rivalry aside and develop multiple strategic management plans

 
By Shahid Akhter, Biswanath Dash
Last Updated: Tuesday 12 May 2020

The novel coronavirus disease (COVID-19) caused by SARS-CoV-2 is holding the world in a vice-like grip. The global economy is heading towards a very sudden and unprecedented recession.

The world economy will plunge between 13 per cent and 32 per cent in 2020, according to the World Trade Organization’s projections. The unprecedented nature of the health crisis has severely disrupted international trade as well as the global supply chain.

According to the United Nations Department of Economic and Social Affairs (DESA), the world economy could potentially plummet by 0.9 per cent in 2020, lower than during the global financial crisis in 2008-2009, where the rate was 1.7 per cent.

An analysis from the United Nations Conference on Trade and Development (UNCTAD) predicted that overseas export markets could face a $2-3 trillion splash in investment for the next two years.

Meanwhile, the deteriorating global economic conditions, foreign and fiscal exchange constraints are going to hit the Indian tea industry hard.

The industry currently contributes 31 per cent to global production and stands fourth in terms of exports. Over the last few decades, the tea industry has played a very significant role in India’s gross domestic product growth and foreign exchange earnings.

India exports tea varieties to around 140 countries across the world. According to the Tea Export Report of India, in FY 2017-18, tea exports were valued at Rs 5,905 crore and Rs 6,241 crore in FY 2018-19.

Iran and Russia are the top export destinations and they together constitute 36 per cent of India’s total export market. The other major tea export destinations are the Commonwealth of Independent States countries, the United States, Germany, United Kingdom, the United Arab Emirates, Egypt, Pakistan and China.

The international borders of all European countries and more than 100 other countries across the globe have been sealed to contain the further spread of COVID-19. According to International Monetary Fund’s Managing Director Kristalina Georgieva, a sharp decline of consumption is predicted in the European Union and the United States, which will lead to curtailing the imports of consumer goods from developing countries.

It is uncertain and hard to predict whether the containment measures will be effective or not. If international borders continue to be closed, the situation will be a catastrophe for many countries in the world.

Such adverse effects of prolonged border restrictions and a sharp downturn of capital flows in the major tea importing countries will cause a severe economic crisis in the tea industry of India.

PK Bezboruah, chairman of Tea Board of India said the tea industry of north India will lose Rs 2,000 crore and a total of almost 150 million kilogram crops due to the nationwide lockdown. United Planters Association of Southern India (UPASI) and North East Tea Association (NETA) estimated that the tea industry across the country will lose nearly 10 per cent of its total annual production.

The economy of North Bengal and Upper Assam is entirely reliant on tea.  Assam contributes half of the country’s total tea production which is 1,300 million kg. Another 25 per cent comes from West Bengal.

According to NETA, Assam by itself will lose around Rs 3,000 crore which is nearly 25 per cent of annual output amid the lockdown. Similarly, the study by UPASI estimated that the tea gardens in South India will lose around 23 million kg. The world-famous Darjeeling tea has already lost its ‘first flush’ (March) production and the second flush (May) is also adversely affected.

Unfortunately, the major domestic tea consuming states of India such as Maharashtra, Uttar Pradesh, Gujarat, Rajasthan, and Madhya Pradesh are facing a higher pandemic crisis among the states. That means the tea industry is in deep trouble in the domestic market as well and is going to experience the worst-ever distress 180 years since its inception.

For a decade now, the Indian tea industry has already been facing a serious threat in the international market due to high competition with other exporting countries. Also, tea exports face some other challenges such as lower production of orthodox teas, inferior quality, limited market accessibility, higher cost of production, fluctuating international demand and various tariff and non-tariff measures in the tea importing countries.

Even though India has a huge domestic market (constituting 80 per cent of its total consumption), foreign exchange plays a vital role in stimulating the financial growth of the country and balancing the uncertain economic landscape in the tea industry.

The statistics say that more than 11 million people are directly or indirectly involved in the tea production activities for their livelihood and around 50 per cent among them are women who come from weaker sections of society.

More than that, small tea gardens and growers contribute almost 51 per cent of the country’s total tea production. The breakdown of global supply chains and the downturn in domestic demand will leave deep scars on the lives of millions of labourers and small tea growers.

The pandemic will disproportionately hit and reverberate across the tea ecosystem, impacting social protection, human rights, education, and in the worse cases, basic food security and nutrition.

As mitigation measures, both the Centre and state governments should keep political rivalry aside and determine to build strong solidarity to deal with this unprecedented crisis by developing multiple strategic management plans.

The government needs to rethink existing bilateral and multilateral treaties and set-up various trade agreements, especially with the countries that are less impacted.

Attention is required to further strengthen domestic supplies of tea and ensure they travel across state borders without grinding any halt. Priority should also be given to re-assessing and re-imagining modes of supply, consumption, and productivity.

Finally, both the Centre and state government need to provide unprecedented support by rolling out a special stimulus package for the ones who are engaged in tea production. 

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