Industry sources said the current exercise by the government would penalise value-addition, an innovative concept propagated by the industry for so long and the key to successful growth of the industry.

Apart from the fact that consumers will have to pay more, the increase in excise duty will have an adverse effect on exports of packaged teas too. Price-realisation through a thrust on value-addition was one of the major business initiative of the tea industry, sources said.

With the ad valorem tax, the difference between loose tea and packeted teas will widen, which will squeeze profit margins, industry observers have to say.

According to market analysts, packet tea prices have already seen an almost 75 per cent increase in prices during 1997-98. Smaller companies will find it exceedingly difficult to absorb theincreasing prices.

Industry estimates put the growth of packet teas in 1997-98 at 4 per cent in volume terms and 7-8 per cent in value- terms. Volume growth in the loose tea market was lower at 2.5 per cent over the same period.

The excise duty will hit the low unit priced (LUP) segment which extends upto packet sizes of 25 grams and which incidentally has the highest profitability.

Consumption of packet teas in India is about 250 million kgs per annum, which is about 40 per cent of the total consumption. This came about as margins between retailers and manufacturers narrowed down in recent times. Earlier, retailers use to earn larger margins on loose teas. Moreover, the intention of the industry was to have a wider penetration of packet teas in the domestic market.

A top tea packeteer said that the spread of tea drinking habit to various parts of the country and into smaller towns and semi-urban areas where distribution outlets did not exist formed the basis of packet tea to gain ground. "Packet teahad a prime advantage -- the consistency of quality and taste were guaranteed", said the official.

Most of the current market growth has occurred in the sub-segment of polypacks, whose sales account for almost 30 per cent of the packet tea market. "Polypacks ensure better shelf life and lend themselves to easy adaptation in terms of smaller sizes and small sachets which is not possible in conventional packet terms", said an official.

Bigger companies may have to cough up larger amounts in 1998-99 to provide for the additional excise. In fact, the industry has been taken offguard with the present budget as they were not prepared to tackle the crisis.

Meanwhile, the Tea Packeters Association of India (TPAI) constituting major players like HLL, Tata Tea, Eveready, Duncan Industries and others have decided to make a formal representation to the Union government to reconsider its decision of imposing an eight per cent excise duty on tea packs.

They have said that the imposition of excise on brandedpackaged tea is detrimental to the industry as well as inflationary in nature.

With a wide consumption pattern of packet teas, across both urban and rural markets, it may be branded as a mass consumption item, said TPAI officials.

Moreover, packet tea has attracted many new players and has generated numerous opportunities for investment, business and employment. However, being sensitive to price, the category will receive a telling blow with the introduction of the penal excise duty, they added.