With the quantitative restriction (QR) on tea imports slated to be removed next year, the domestic industry had been crying itself hoarse demanding an increase in the duty rate to 35 per cent to avoid flooding of the Indian market with cheap imported tea. Industry sources said that the main reason for decline in prices was the perception in the market that foreign tea would be available at very low price when QRs are removed because of prevailing low customs duty. All India tea prices have declined drastically in 1999 by over Rs 3 per kg.

The industry is hopeful that the increase in duty would give a psychological boost to the industry and buyers would no longer defer their purchases which would lead to a firming up of prices.

Customs duty in all major tea producing countries range between 30 per cent to 40 per cent and India was the only country which had a low duty rate of 15 per cent. With the increase in import duty to 35 per cent, India's rates will now match with Sri Lanka, its biggest rival in the world market.Import duties in other major tea producing countries like Kenya, Tanzania, Malawi, Mauritius is 30 per cent while in Zimbabwe and Bangladesh import duties are as high as 40 per cent.

Although in the Union Budget 2000-2001, there was an assurance that agricultural and horticultural products would be brought to the peak rate of 35 per cent to ensure adequate protection to farmers when the QRs are removed, there was no proposal for customs tariff enhancement for tea.

Subsequently, representations were made to the government by members of the tea industry including the Tea Association of India (TAI) stating that tea was essentially an agricultural activity giving direct employment to 1 million people and was also subject to the vagaries of nature and volatilities of the commodity market like other agricultural products.