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The Indian tea industry, second only to China’s, is a vital part of the country’s agricultural economy. In 2024, India produced 1,285 million kg of tea — an increase of 109 million kg, or 8%, compared to 2023. Between January and July 2025, production reached 641.44 million kg, which is 77 million kg (14%) higher than the same period last year.

Continuing Challenges

The industry faces a host of persistent problems:

1. Climate change — Shifting weather patterns, rising temperatures, and irregular rainfall are affecting both the quantity and quality of tea produced in India.

2. A stagnant domestic market — Unlike Sri Lanka, Kenya, or other major tea exporters, Indian tea is heavily dependent on domestic consumption. However, demand in the home market has remained largely stagnant, raising concerns about an oversupply situation.

3. Competition from imports — Cheap, low-quality tea imports from Nepal (duty-free) and Kenya have been rising steadily. Data from the Ministry of Commerce and Industry confirms this growing inflow, which is undermining Indian producers.

4. Rising costs and falling productivity — According to the Tea Association of India (TAI), wage costs have risen by 200% over the past decade. At the same time, productivity has been falling. Estate producers argue that the rapid growth of small tea growers — who often sell lower-quality tea at cheaper prices due to lower labour costs — is eroding the industry’s strength. Added to this, stricter pesticide regulations have pushed up input costs further.

US Tariff Shock

On 7 August 2025, the United States imposed a 25% tariff on many Indian goods. A second “penalty” tariff of another 25% took effect on 27 August, raising the total duty to 50%. Tea was included in this list.

PK Bhattacharjee, Director General of TAI, noted that until recently most Indian teas — black, green, Darjeeling, Assam, Nilgiri, etc. — entered the US market at import duties ranging from 0–6%, with bulk tea effectively enjoying duty-free access.

The new tariffs are therefore a serious setback. The US accounts for 6–7% of Indian tea exports. Bhattacharjee warned that a 50% duty would make Indian tea less competitive, dampening demand and reducing export margins. Premium varieties may retain some presence in the US market, but overall volumes are expected to decline. With the festive season approaching, retail prices in India could climb by 15–25% around Diwali, he added.

GST Impact on the Tea Industry

The GST impact is mixed and depends on the category of tea:

No change in GST on tea: The standard GST rate of 5% on tea — whether plain or flavoured — remains unchanged.

Relief for tea extracts: The GST on tea extracts, essences, and concentrates (HS Code 2101) has been cut from 18% to 5%. TAI believes this will encourage investment in instant tea, ready-to-drink mixes, and other value-added products, making Indian tea extracts more competitive globally.

However, challenges remain on the cost side:

Fertilizer continues to attract 5% GST with no change.

The GST on coal has been raised from 5% to 18%, though the compensation cess of ₹400 per tonne has been removed. TAI expects this may balance out or even lower coal prices, but the long-term effect is uncertain.

Outlook

While the GST cut on tea extracts offers some relief and growth prospects in the value-added segment, the combined impact of climate stress, rising costs, cheap imports, and now steep US tariffs has put India’s tea industry under severe pressure. Whether the sector can adapt and recover will depend on how effectively it addresses these structural challenges while leveraging opportunities in innovation and global markets.