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Japan Tobacco FDI plan raises govt row

Surajeet Das Gupta  |  New Delhi 

PMO, health ministry, ITC, associations argue over the issue.

A proposal by tobacco giant to raise its equity in its Indian joint venture has kicked off a major controversy with the country’s largest tobacco company and the opposing the move and the Prime Minister’s Office (PMO) being impelled to intervene.

In June this year JTI submitted a proposal to the (FIPB) to raise its stake in JT International (India) Ltd, which makes the Camel and Winston cigarette brands, from 50 to 74 per cent. The proposal was endorsed by the ministry of commerce and industry, which argued the policy allowed 100 per cent Foreign Direct Investment (FDI) in the sector subject to industrial licensing and the proposal was not for fresh capacity for cigarette manufacturing.

Meanwhile, the PMO, in a series of letters in July and August, has directed the department of commerce and industry to take action on points raised by the Tobacco Growers Welfare Association of Guntur, which has opposed the increase in FDI, and also instructed the Department of Economic Affairs (DEA) to give its comments on a petition by the Tobacco Institute of India (TII), which represents the interests of domestic tobacco companies and also opposed the JTI proposal.

The PMO has also directed the DEA to take the opinions of the and the department of revenue on the contentious issue.

In its representation to the finance ministry at the end of July, ITC also strongly opposed the, JTI proposal on various grounds. ITC contended that the original licence to manufacture cigarettes was given to the Indian joint venture, in which JTI had a 50 per cent holding and Indian promoters the rest.

ITC argued that since the original approval for foreign collaboration agreement and the licence were given to the Indian joint venture, the character of the venture could not be changed to a foreign company (which it will become if JTC has 74 per cent).

ITC also said that JTI was working at only 4 per cent of its licensed capacity. A fresh infusion of funds would increase its production manifold, which is tantamount to encouraging in an industry that is considered a health hazard. An ITC spokesperson declined to comment on the issue.

A JTI spokesperson said: “Our application is in line with the government’s policy in terms of Press Note 4 of 2006 and Press Note 7 of 2008.”

The ministry of health in its reply contended that as a strategy to reduce supply of tobacco, it does not support any further investment, including in the tobacco sector. In a strongly worded letter to Commerce Minister Kamal Nath, Health Minister has gone even further by stating that tobacco should be included in the negative list in various free trade agreements, in the restricted list in the import licensing policy and kept outside in both the as well as special economic zone (SEZ) policies. At present, tobacco is not included in the negative list of free trade agreements and cigarettes can be imported under open general licence.

The Guntur tobacco growers in their letter to Prime Minister have stated that though JTI has been in operation for nine years, it has not come in contact with farmers or undertaken any developmental programmes in tobacco farming. The TII has also opposed any increase in equity on the grounds of public health in its letter to the The TII did not reply to an an e-mail questionnaire.

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JULY 4:  Japanese firm tests FDI policy in tobacco

First Published: Thu, October 02 2008. 00:00 IST