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  1. How DIPP’s tobacco sector FDI ban discomfitted NITI Aayog

How DIPP’s tobacco sector FDI ban discomfitted NITI Aayog

NITI Aayog is learnt to have expressed its reservations on a proposal by the Department of Industrial Policy and Promotion (DIPP) to further curb foreign direct investment in the tobacco sector, according to official sources.

By: | Updated: June 10, 2016 7:34 AM
Tobacco The DIPP has proposed to ban FDI in technological collaboration in the tobacco sector in any form, including licensing for franchise, trademark, brand name and management contract. (Reuters)

NITI Aayog is learnt to have expressed its reservations on a proposal by the Department of Industrial Policy and Promotion (DIPP) to further curb foreign direct investment in the tobacco sector, according to official sources.

However, the finance ministry hasn’t submitted any negative feedback on the DIPP proposal so far, although inter-ministerial consultations are still on and a final decision is yet to be taken, a senior government official told FE.

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The commerce ministry, which is the administrative authority of the state-run Tobacco Board, too, has already submitted its views on the matter, said another official.

The support of the finance and commerce ministries will be even more critical for the DIPP now that NITI Aayog has some reservations on the issue. Discussions between DIPP and NITI Aayog are still on to resolve the matter.

The DIPP has proposed to ban FDI in technological collaboration in the tobacco sector in any form, including licensing for franchise, trademark, brand name and management contract. FDI is already banned in the manufacturing of cigars, cigarettes of tobacco and tobacco substitutes.

Proposal to take effect prospectively

If implemented, the proposal will most likely take effect only prospectively, without upsetting existing tie-ups, a government official said.

Already cigarette manufacturers, including Godfrey Phillips India, have expressed their concern against the proposed move. Godfrey Phillips India manufactures and markets Marlboro cigarettes in India under a licence agreement with US’ Philip Morris. While its existing tie-up may be allowed to continue, the latest proposal, if approved, will nevertheless spoil chances of any acquisition of stakes in Godfrey Phillips India by Japan Tobacco.

According to earlier 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 owns 25.1% of Godfrey Phillips India, while KK Modi and family own 46.96%. Godfrey Phillips India also uses the cash and carry model to sell cigarettes of foreign brands.

The DIPP move seems to be part of the efforts to cut the consumption of tobacco products, as India is a signatory to the global Framework Convention on Tobacco Control, so it has to reduce tobacco consumption.

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Tags: Cigarette

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