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World Bank unit's wage scandal at Tata tea estates a lesson in due diligence

Women pick tea at a plantation in Assam. (Photo by Yuji Kuronuma)

NEW DELHI -- A World Bank Group lender's credibility has been threatened over questions involving its investment in the tea plantation unit run by Indian conglomerate Tata group, following complaints that the company pays workers just half the minimum wage.

India is the world's second-largest tea producer, and Amalgamated Plantations Private Ltd. is the second-biggest player in that country. APPL grew out of a business founded by a British man in the 19th century before becoming part of the Tata group, and was part of Tata Tea until 2007.

The World Bank Group's International Finance Corp. is an investor. However, several of the company's plantations have come under criticism from local nongovernmental organizations as workers toil long hours for less than minimum wage.

A senior manager at one of the company's 25 tea plantations told the Nikkei Asian Review that workers there were paid the legally mandated wage. Some 4,000 laborers pick tea at that 9-sq.-km estate in the northeastern Indian state of Assam.

APPL can pay below minimum wage yet follow the law because of an exception dating back to the days of British rule. Unskilled workers in Assam are legally entitled to a minimum daily wage of 240 rupees ($3.60), but those at tea plantations need to be paid only 126 rupees a day. According to the Indian Tea Association, tea pickers' pay has "historically [been] set through bilateral discussions between employers and unions," indicating all tea plantations simply apply the manner existing since the colonial era and remains exempt from minimum wage laws.

The aforementioned manager insists that the plantation cannot afford to pay more owing to a tough business environment and a "very salty situation of our financial back bone." Meanwhile, some of APPL's workers teeter on the World Bank's international poverty line of living on $1.90 a day.

The IFC holds a 15.7% stake in APPL. It formed a partnership with the Tata group in 2009, hoping to turn APPL into a model company for employee ownership schemes. But the investment has opened a can of worms that could threaten the development financing institution's reputation, starting with the wage issue. The Compliance Advisor Ombudsman, the IFC's compliance arm, has been investigating. An official of CAO told the NAR in a written reply that "CAO is expecting to finalize its investigation report shortly."

The Tata group, India's largest business empire, has made many contributions to the country's industrial history, including its first steel mill and first commercial airline. And it remains an active contributor to Indian society. The IFC "chose to partner with APPL, as a company that has adopted strong environmental and social sustainability standards and is committed to their implementation[,] also providing opportunities for workers to share in the benefits of growing the company," according to the finance company's statement to the NAR.

But local NGOs claim that "rather than conducting its own direct monitoring of APPL's plantations, the IFC's pre-investment due diligence relied heavily on ... the promise of external certification and monitoring, and the reputation of Tata Group."

The case offers many lessons to foreign actors seeking partnerships in emerging economies, such as the need to carefully assess the wages, historical background and employee sentiments at any potential partner.

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