New Delhi: The government on June 25 approved 100 per cent foreign direct investment (FDI) in the tea plantations to boost the sagging fortunes of the industry, plagued by a slump in prices.

The approval came during a meeting of the Union Cabinet, but a condition has been attached that the foreign company will have to divest 26 per cent stake within a period of five years to an Indian company, Union Parliamentary Affairs Minister Pramod Mahajan said.

Further, state government approval has to be taken if there is any change in the present pattern of land use.

Official sources said, "FDI in tea will lead to faster development of the sector. We have therefore allowed upto 100 per cent FDI in tea plantations, subject to compulsory disinvestments of 26 per cent equity in favour of an Indian partner or public within a period of five years".

Earlier, the Consultative Committee on Plantation Association has suggested that foreign shares should be restricted to 74 per cent, United Planters Association of South India opined that it could be considered even upto 100 per cent.

As a major part of the Indian tea is produced in backward regions like Assam and other states of the Northeast, investment there will get a boost with the nod to FDI, sources said.

FDI in the sector has been cleared, as tea cannot be categorised as any other agricultural crop as it requires high investment and long gestation period.

With stiff global competition in the external market and soon in the internal market as well, it is important that investment in this sector should be encouraged.

The clearance comes at a time when prices have touched abysmal lows, much below the cost of production and the industry is in need of a much sought after stimulant.

While the global output has shown an upward trend with new producers and exporters entering the fray, prices have slumped.

Correspondingly, Indian prices and exports have also taken a beating and the industry and government are trying ways and means to shore up the bottom line.

PTI