Nepalese tea must pay an excise duty of 70% on entering the Indian market. As discussed previously, it is also restricted in its markets within India – hill tea from Ilam cannot be sold in Darjeeling. According to the officials of business associations interviewed, Nepal tea is now going into Siliguri, but outside of the GI system – they are sold to non-plantation ‘bought leaf’ factories, where they are blended with Indian tea and sold abroad. Even here, the process can be difficult (see Box 2).

## **Box 2: Exporting tea from Nepal to India**

For CTC tea from Nepal, brokers in Siliguri get samples from Nepal, and then pass on the offering prices to the auctioneer. There are no costs of middlemen in Nepal. There will be personal visits for samples. Samples sent by the buyer (through the broker) are sent via Indian trucks and then forwarded. The samples must then go to customs, and are then sent to Kolkata for lab testing. This process, which results in receiving the CFL (license) takes 6 months. Costs for customs regulations and clearance are said to be high, and the license provided is valid only for 6 months. With regular shipments established, Indian trucks are also used. Indian trucks generally come through the Kakarbhitta border crossing – for loading and unloading they are permitted to stay in Nepal only for 24 hours. Payment from the buyer must be deposited at Siliguri. There was an auxiliary duty of 4 percent on tea, which has been removed, but remains in place for green tea imports from Nepal. Despite lobbying by the Nepali tea planters, the Tea Board in India has not removed this duty. For orthodox tea produced in Ilam **,** Indian trucks come through Kakarbhitta and then take the leaves directly on to Kolkata as they are not permitted to be sold in Darjeeling.

Despite the restrictions, India remains by far the most important export market for Nepal’s tea, accounting for around 90% of exports. Data suggests that exports to India have declined over the past decade. Interestingly, Nepal’s export statistics suggests substantially higher volumes of tea going to India than is reported in Indian import statistics. This may reflect ‘unofficial’ trade, whereby Indian importers are not recording Nepal as the country of origin for tea imports to avoid the new restrictions imposed on Nepalese tea. Or it may reflect genuine re-export trade.

# **6. Constraints to trade, value chain integration, and competitiveness**

## <u>Constraints specific to cross-border trade</u>

One major transport constraint affecting cross-border trade in Darjeeling is the possibility of mismatch between the SUVIDHA number and the Central Sales Tax (CST) form.<sup>14</sup> In Delhi, the Central Sales Tax registration number and the Tax Identification Number (TIN) are the same, but they are different in other states. This difference creates inconvenience according to the transport officials.

Check posts, which had been removed in West Bengal for some time, have recently been reintroduced. There is competition among the transporters, and prices are set freely, but unions determine industry-wide margins. Transport handling is seen as a constraint by the industry (It is noted that in Kenya there are special rules for handpicked tea, although this is not the case in India). While transport from Siliguri to Delhi is said to be efficient, **from Kolkata to Siliguri, it takes on average 14 hours to travel only 650 kilometers.** For transport between Siliguri and Nepal, customs formalities are said to cause delays in both directions, with separate forms (ARE) are required.

In addition, there is **no proper storage system near the border** , which Nepalese respondents see as a major constraint. To improve the infrastructure in Siliguri for the tea industry, the West Bengal government has decided to build a container port. Through the arrival of inland waterways, exports of tea are expected to be promoted. Through the establishment of the dry port, it is supposed to

> 14 SUVIDHA is a 17 digit unique identification number, for which the seller’s invoice is needed. In West Bengal, Form 58 is needed.

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