Reacting to concerns expressed in certain quarters, a press note issued by the government clarified that proposals for manufacture of cigarettes with FDI upto 100 per cent will be considered by the Foreign Investment Promotion Board (FIPB) subject to the provisions relating to compulsory licensing under the Industries (development & regulation) Act, 1951.

On FDI in the alcohol sector, the ministry of industry clarified that the only case where 100 per cent FDI for potable alcohol has been permitted till date relates to that of Seagram Company of Canada, which was approved in 1993 during Narasimha Rao regime. Subsequent to this, no other proposal has been so far approved with 100 per cent FDI for manufacture of alcohol.

The government further clarified that the existing guidelines for the consideration of FDI proposals by the FIPB do notstipulate any ceiling on the extent of foreign equity participation inter-alia in sectors pertaining to consumer non-durables, which include cigarettes. However, as there has been no precedent of 100 per cent FDI approval in cigarettes so far, it was felt necessary to clarify the position as stated above for lending greater transparency in decision making. The only proposal received so far for 100 per cent FDI for manufacture of cigarettes is that of Rothmans of Pall Mall (International) Ltd, UK.

Even this proposal is only for initial 100 per cent FDI with subsequent disinvestment of at least 26 per cent equity to Indian public. The Rothmans proposal came up for preliminary consideration by the FIPB on September 5, 1998 and the board has not so far taken any view on the proposal. In any case, in terms of the project cost envisaged, the final decision on this proposal would require the approval of the Cabinet Committee on Foreign Investment (CCFI).