The Cabinet will soon make a decision on an industry ministry proposal to put more curbs on foreign direct investment (FDI) in the tobacco sector, aimed at further discouraging tobacco consumption to honour the country’s commitment to the World Health Organization (WHO).
An early decision by the Cabinet on the department of industrial policy and promotion’s (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 — is crucial to curbing speculations about the likely changes to the FDI rules governing the sector. This is because while the DIPP proposal has got support from the ministries of commerce, finance and health, it has faced resistance from NITI Aayog.
Since FDI is already banned in the manufacturing of cigars, cigarettes of tobacco and tobacco substitutes, any more curbs will almost choke such investments into the sector. “Consultations between the DIPP and NITI Aayog have been held on this issue,” said a senior government official. “The initial comments of various ministries have been taken into consideration.” Since key ministries support this move, there is a greater chance of its approval by the Cabinet.
Cigarette manufacturers, especially Godfrey Phillips India, have expressed their concerns against the DIPP proposal. 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 the much-speculated acquisition of stakes in Godfrey Phillips India by Japan Tobacco.
The commerce ministry has said it supports the proposal so long as it doesn’t restrict FDI in tobacco procurement. The DIPP proposal doesn’t suggest a ban FDI in tobacco procurement.
The commerce ministry’s opinion is based on the premise that any restriction on foreign companies from participating in tobacco auctions in India will hurt farmers’ earnings. A compensation package to lure away farmers from tobacco plantation, so that supplies are choked and consumption trimmed, has often been suggested, but never implemented. At present, global companies are allowed to directly participate in tobacco auctions and they can also set up liaison offices in the country for this purpose.
Earlier, sources had said NITI Aayog had felt such a move could send a wrong signal to the foreign investor community, especially when India had relaxed rules substantially to become the world’s “most liberalised country for FDI”.
However, activists have hailed the DIPP proposal, saying the move — albeit belated — is another crucial step to put a leash on tobacco consumption, as India is a signatory to the WHO’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.