Govt may allow foreign tobacco cos into India

International tobacco majors like British American Tobacco and Phillip Morris might be able to set up operations in India soon. The government may free the industry from licence norms, just as it had done for alcohol companies in 2007.

Current norms do not permit international tobacco companies to set up shops in India, either directly or indirectly. Foreign direct investment is not allowed in tobacco processing as well as cigarette manufacturing.

But once the licensing regime is eased, international companies can set up operations here. In addition, the move would offer the government ways to open the sector to global companies for manufacturing, marketing and retailing as well.

But, like the alcohol sector, the international companies may have to piggyback Indian partners to set up manufacturing facilities. The other option is to allow them to enter branding agreements with Indian companies so that domestic companies produce foreign cigarette brands in India and sell in the home market. The sales revenue of the cigarette industry in India was about Rs 17,500 crore in 2006-07.

?The government wants to open up the sector gradually, as there are many issues attached to such a move. A decision on this will be taken at the political level soon,? said a government official.

Currently, international companies are allowed to import a specified quantity of cigarettes using the duty-paid route. Besides, international cigarettes brands are also smuggled into India or are purchased by travelers at duty-free shops before they enter the country. De-licensing will go a long way towards eliminating smuggling of foreign brands that eat into the profit margins of domestic tobacco companies.

The tobacco industry in India is one of the biggest taxpayers with annual contributions estimated at about Rs 40,000 crore. For most of the cigarette companies, South Asia is one of the fastest growing markets with double-digit growth, while markets like the US and Europe are showing signs of stagnation, mainly due to regulatory issues and lifestyle changes.