Govt may stub out FDI in tobacco

The government is all set to accept the recommendations of a ministerial group and ban foreign direct investment (FDI) in tobacco,
dealing a blow to the plans of international tobacco firms that have long eyed a bigger presence in the Indian market.

The move, which forms part of a Cabinet note prepared by the Department of Industrial Policy and Promotion (DIPP) that frames the country’s foreign investment rules, could notably affect Japan Tobacco International’s (JTIL) proposal to raise stake in its Indian venture to 74% from 50% now.

The DIPP has prepared the note containing the inter-ministerial group’s decision for the Cabinet Committee on Economic Affairs (CCEA), the government’s highest decision-making body on economic issues, a senior government official said, adding that issue was likely to be taken up for a final decision within a fortnight.

With an inter-ministerial group, which comprises officials from the health, commerce, finance and industry ministries and the Planning Commission, opposed to FDI, chances of the CCEA adopting a different position were slim, the official said.

A decision to ban FDI will draw a line under a long-running issue that has seen hectic lobbying from domestic and foreign players, and will be victory for the health ministry, which had sought a total FDI ban in tobacco.

While the government does not allow creation of fresh cigarette manufacture capacity, the current policy lacked clarity on whether FDI is allowed in this sector. The policy had come under attack from various quarters, especially the health ministry.

JTIL, the third-largest manufacturer of cigarettes in the world and the owner of brands such as Camel, Winston, Gold Coast and Salem, had sought the Foreign Investment Promotion Board’s (FIPB) permission to raise its stake in its Indian unit — JTI India — in July and October last year and again in January this year.

The company had argued that its proposal was to buy out the shares of the Thakkar family, its Indian partner, and not invest in fresh capacity.

When the proposal came up for consideration in January this year, the DIPP deferred a decision on the company’s application, saying it needed more time to finalise the FDI policy for the tobacco sector.

However, the proposal was bitterly opposed by the health ministry, which argued that it would encourage the growth of the tobacco industry. The CCEA had then directed the inter-ministerial group to take a final call on the issue.

India’s branded cigarette market is worth around Rs 17,000 crore annually and growing at 8-10% a year. Cigarettes account for less than a fifth of the tobacco consumed in the country.

Foreign tobacco giants have long lobbied for greater FDI in the sector, although local tobacco firms have opposed it.

Philip Morris International chairman and CEO Louis C Camilleri has in the past written to former commerce minister Kamal Nath arguing that protectionism was an ineffective tool to address public health objectives and would only entrench existing players.

Dominique Dreyer, Swiss ambassador to India, also wrote to the DIPP a few months ago pressing for an increase in investment by a Swiss affiliate of the US-based Philip Morris in India’s Godfrey Philips. The world’s largest tobacco company has been trying to acquire its partner KK Modi’s stake in Godfrey Philip for some time now.

source: www.economictimes.indiatimes.com

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