The government is discussing a plan to impose fresh curbs on the foreign direct investment (FDI) in the tobacco sector, seeking to restrict FDI in technological collaboration in the tobacco sector in any form — including licensing for franchise, trademark, brand name and management contract.
Since FDI is already banned in the manufacture of cigars, cigarettes of tobacco and tobacco substitutes, any more curbs will almost choke such investments into the sector.
In a meeting on Wednesday chaired by department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek, the proposal to bring in the fresh curbs was discussed with stakeholders, sources told FE. “It was basically a meeting to hear views of relevant stakeholders and no decision has been taken yet,” one of the sources said.
Players like Godfrey Philips India (GPI) have opposed the proposal, while some NGOs supported the move.
But any such move could further bolster the position of ITC which already holds a dominant share in the domestic market, more so due to the fact that cigarette is a licensed industry in India. According to industry estimates, ITC has a 78-80% share in the retail market, followed by GPI (10-12%). The key brands of GPI include Four Square, Cavenders and Red & White.
GPI manufactures and markets Marlboro cigarettes in the country under a licence agreement with the US’ Philip Morris. While its existing tie-up may be allowed to continue, such a move will jeopardise the possibility of the much-speculated acquisition of stakes in GPI by Japan Tobacco. In fact, it’s not clear if Japan Tobacco is still looking for a stake in GPI, after reportedly showing interest in 2016.
The proposal, first mooted by DIPP in 2016, was relegated to background following reservations by NITI Aayog, apart from the opposition from GPI and certain farmer groups. However, the DIPP proposal had got support from the ministries of commerce, finance and health.
The proposal was aimed at discouraging tobacco consumption to honour the country’s commitment to the World Health Organisation.
The commerce ministry has said it supports the proposal so long as it doesn’t restrict FDI in tobacco procurement. The DIPP proposal doesn’t suggest a ban on FDI in tobacco procurement.
The commerce ministry’s opinion is based on the premise that any restriction on foreign companies from participating in tobacco auctions in India will hurt farmers’ earnings. A compensation package to lure away farmers from planting tobacco, so that supplies are choked and consumption trimmed, has often been suggested but never implemented. At present, global companies are allowed to directly participate in tobacco auctions and they can also set up liaison offices in the country for this purpose.
Apart from officials from the departments of commerce and health, representatives from companies like ITC, GPI and even farmers’ associations from the key producing state of Andhra Pradesh and NGOs participated in Wednesday’s meeting.
Sources had earlier said that NITI Aayog, while opposing the proposal in 2016, had felt such a move could send a wrong signal to the foreign investor community, especially when India had relaxed rules substantially to become the world’s “most liberalised country for FDI”.
However, activists have hailed the DIPP proposal, saying the move — albeit belated — is another crucial step to put a leash on tobacco consumption, as India is a signatory to the WHO’s Framework Convention on Tobacco Control. To discourage smoking, the government already stipulated that 85% of a cigarette pack’s surface be covered in health warnings, up from 20% — a decision that was later upheld by the Supreme Court.