The department of industrial policy and promotion (DIPP) is holding talks with NITI Aayog to sort out
differences over a proposal to further curb foreign direct investment (FDI) in the tobacco sector, and a decision will be made soon, sources told FE.
An early decision on the issue has been necessitated to curb speculations about the FDI rules governing the tobacco sector in the future. Already, the share price of Godfrey Philips India, which will lose out if the DIPP proposal is approved, has plunged close to 27% on the BSE since late April, when reports about the likely move surfaced.
NITI Aayog has expressed its reservations on the DIPP proposal to ban FDI in technological collaboration in the tobacco sector in any form, including licensing for franchise, trademark, brand name and management contract. However, the finance ministry is learnt to be favourably considering this proposal, and the commerce ministry, which is the administrative authority of the state-run Tobacco Board, has also not opposed the proposal so far.
Since FDI is already banned in the manufacturing of cigars, cigarettes of tobacco and tobacco substitutes, the latest proposal is aimed at completely choking flow of such investments into the sector.
A source said NITI Aayog feels such a move may send a wrong signal to the foreign investor community, especially when India has relaxed rules substantially to become the world’s most liberalised country for FDI.
The Narendra Modi government has already announced two big rounds of relaxations in the FDI regime, first in November 2015 and then in June this year, easing rules in over a dozen sectors ranging from real estate, aviation, defence to retail and banking.
The country witnessed a 23% jump in gross FDI in 2015-16 to $55.46 billion from a year before, with FDI in equity rising over 29% to $40 billion in the last fiscal. In 2014-15, too, the total FDI inflows rose 25% from the previous fiscal.
Cigarette manufacturers, especially Godfrey Phillips India, have expressed their concern against the DIPP move.
Godfrey Phillips India manufactures and markets Marlboro cigarettes in the country under a licence agreement with US’ Philip Morris. While its existing tie-up may be allowed to continue, such a move will dent the possibility of acquisition of stakes in Godfrey Phillips India by Japan Tobacco. Earlier, media reports had suggested that the world’s third-largest tobacco company was looking for a stake in Godfrey Phillips India.
The latest DIPP move seems to be part of the government’s efforts to cut the consumption of tobacco products, as India is a signatory to the World Health Organisation’s Framework Convention on Tobacco Control. To discourage smoking, the government already stipulated in April that 85% of a cigarette pack’s surface be covered in health warnings, up from 20% — a decision which was later upheld by the Supreme Court.