This could be a major setback to Philip Morris' plans in India. Philip Morris already holds about 36 per cent stake in KK Modi-controlled Godfrey Philips India.

Sources in the government said that the FTR proposal has not found favour with the commerce ministry due to several factors, including the absence of clear reasons by the company for establishing a wholly owned subsidiary in the country. The FTR proposal, along with the Rothmans application, has been forwarded to the core group of the FIPB for a final decision. The proposal of FTR is silent on whether the concurrence of Godfrey Philips has been obtained for setting up a wholly owned subsidiary, according to commerce ministry sources.

The MoC also wants FTR to explain why the activities proposed to be undertaken by its wholly owned subsidiarycannot be undertaken through Godfrey Philips.