The DIPP is working on a proposal to ban FDI in technological collaboration in any form, including licensing for franchise, trademark, brand name and management contract in the tobacco sector, the sources said.
Since FDI is already banned in the manufacturing of cigars, cigarettes of tobacco and tobacco substitutes , the latest proposal, if implemented, will be a setback for a company like Godfrey Philips India, which manufactures and markets Marlboro cigarettes in India under a license agreement with US’ Philip Morris. However, such a move will hugely benefit domestic companies like ITC, also due to the fact that cigarette is a licensed industry in India.
Any such move may also spoil chances of the acquisition of stakes in Godfrey Philips India by Japan Tobacco. According to reports, the world’s third-largest listed tobacco company was in talks to acquire a part of promoter’s stake in Godfrey Phillips India. Philip Morris Global Brands Inc owns 25.1% of Godfrey Philips India, while KK Modi and family own 46.96% block. Godfrey Philips India also uses the cash and carry model to sell cigarettes of foreign brands.
Godfrey Philips India shares tanked by over 17% on Tuesday, on speculations of the government move, before recovering by just 1.4% on Wednesday.
The sources said the move is part of the efforts to cut the consumption of tobacco products, as India is a signatory to the global Framework Convention on Tobbaco Control.