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India’s tea industry today stands at a crossroads. Producers’ associations such as the Indian Tea Association (ITA) and the Tea Association of India (TAI) have raised concerns about the declining dynamism of the sector. Several factors contribute to this trend.

Climate and Production Challenges

One of the foremost challenges is the uncertainty in production volumes, primarily caused by erratic weather conditions. Extreme heat in May 2024, followed by severe floods in Assam, led to a sharp fall in tea production—down 30% to 90.92 million kg, the lowest in more than a decade.

India remains the second-largest tea producer in the world, after China. In 2024, India’s total tea production reached 1,285 million kg, an 8% (or 109 million kg) increase over 2023. From January to July 2025, production stood at 641.44 million kg, about 14% higher than the same period last year.

However, while production has been growing at around 4% annually, domestic demand has increased by only 2%, resulting in an emerging supply-demand imbalance.

Price Stagnation and Domestic Dependence

Price stagnation, particularly in Assam—which contributes roughly 55% of India’s total tea output—has become a serious concern. A unique feature of the Indian tea industry is its heavy domestic dependence: about 80% of Indian tea is consumed within the country. This contrasts sharply with nations like Kenya, which exports nearly all of its tea production, making it the world’s largest tea exporter, followed by China. India ranks third globally in tea exports.

Rising Costs and Climate Suitability

Over the last decade, the cost of production has increased significantly due to higher prices of essential inputs. Producers report that input costs have risen by 9–15% annually, while average tea prices have grown by only about 4% during the same period.

Tea is a tropical and subtropical crop, thriving best in hot and humid conditions with temperatures between 20°C and 30°C. Temperatures above 35°C or below 10°C can severely damage yields. Likewise, well-distributed rainfall between 150 and 300 cm is crucial. However, climate change has disrupted both temperature and rainfall patterns across major tea-producing regions, threatening long-term productivity.

Current Issues Confronting the Tea Industry

Rising Imports of Low-Quality Tea — India has been witnessing increased imports of cheap, low-quality tea from Nepal (at zero duty) and Kenya, as confirmed by the Ministry of Commerce and Industry’s economic data indicators.

Escalating Costs and Wages — According to the Tea Association of India, wage costs have risen by nearly 200% over the past decade, posing serious challenges for estate producers.

Falling Productivity and Unregulated Small Growers — Large estate producers argue that the rapid growth of small tea growers (STGs) has diluted overall quality and weakened India’s tea brand. STGs often produce lower-quality tea and sell it at cheaper rates, benefiting from lower labour costs. Labour expenses typically account for about 75% of total tea production costs. Many small growers also reportedly bypass Tea Board of India (TBI) regulations. If true, this calls for stricter oversight by the TBI to ensure quality and compliance.

Additionally, stricter pesticide regulations have further increased production costs, adding pressure on producers.

Impact of U.S. Tariffs on Indian Tea Exports

Effective August 2025, the United States imposed a 25% tariff on many Indian goods, followed by an additional 25% “penalty” tariff from August 27, raising the total tariff burden to 50% on several products, including tea.

According to P.K. Bhattacharjee, Director General of TAI, most Indian teas (black, green, Darjeeling, Assam, Nilgiri, etc.) previously entered the U.S. market with import duties between 0–6%, often effectively duty-free for bulk imports.

He noted that while only 6–7% of Indian tea exports go to the U.S., the new tariffs would significantly raise retail prices and reduce competitiveness in that market. Premium teas might retain some niche demand, but overall export volumes and margins are expected to fall, particularly during high-demand seasons such as Diwali. Retail prices for Indian tea in the U.S. could rise by 15–25% during that period.

GST Impact on the Tea Industry

The Goods and Services Tax (GST) continues to affect the tea sector differently across product categories. As per the latest notification (17 September 2025), the GST rate on tea (flavoured or unflavoured) remains unchanged at 5%.

However, the GST on tea extracts, essences, and concentrates (HS Code 2101) has been reduced from 18% to 5%, a move welcomed by the TAI. The association expects this reduction to encourage investment in value-added segments like instant tea, ready-to-drink mixes, and tea-based beverages, while also enhancing global competitiveness.

Despite this, the TAI suggests further relief on key inputs such as coal and fertilizer. While the GST rate on fertilizer remains at 5%, the GST on coal has risen from 5% to 18%—though the removal of the ₹400 per tonne compensation cess could help offset the increase. The TAI expects the net effect to be either neutral or slightly beneficial in terms of overall coal prices.

Conclusion

India’s tea industry, a cornerstone of its agrarian and export economy, faces multiple challenges—from climate vulnerability and rising costs to market imbalances and regulatory lapses among small growers. Addressing these structural issues with targeted policy support, price discipline, and climate-resilient practices will be essential for restoring the industry’s health and global competitiveness.