DIPP to review FDI in cigarette industry on Jul 10

The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce has called a meeting on July 10 to discuss the foreign direct investment (FDI) policy in the cigarette industry.

The meeting will be attended by officials from the Department of Economic Affairs, the health ministry and the Planning Commission.

Under the current policy, FDI up to 100 per cent is allowed in this sector provided no licence is issued to manufacture cigarettes. The policy has come under attack from various quarters, especially from the health ministry, which has sought a total ban on FDI in the industry. The health ministry has moved a draft note for the Cabinet on this.

The move comes at a time when Japan Tobacco International’s (JTIL’s) proposal to raise its stake in its Indian venture from 50 per cent to 74 per cent has been pending before the Foreign Investment Promotion Board (FIPB) for months. The proposal is considered a test case given that no application on tobacco has been cleared by the FIPB since 1998 due to strong opposition from the domestic tobacco lobby as well as sections of the government. Domestic tobacco companies are opposed to entry of new players or increase in stakes by the incumbent foreign companies.

There has been hectic lobbying on the issue by both domestic and international majors.

Dominique Dreyer, Swiss ambassador to India, is said to have written to the DIPP a few months ago to argue for a proposed increase in investments by a Swiss affiliate of US tobacco major Philip Morris International in Godfrey Philips. Philip Morris has 35.93 per cent stake in Godfrey Philips, in which KK Modi is the Indian partner. The issue has been pending for years. Sources said the Swiss ambassador said in his letter that the Indian government should consult all stakeholders before any substantial change in investment and trade rules applicable to tobacco products.

The ambassador’s letter reiterated that the Indian government’s policies effectively limited manufacturing capacity in tobacco and so new or additional FDI would not increase India’s cigarette manufacturing capacity.

Phillip Morris International Chairman and CEO Louis C Camilleri had also written the former commerce minister Kamal Nath saying protectionism was an ineffective tool to address public health objectives and would only entrench the few existing participants to the detriment of others.

Camilleri argued that the health effects of tobacco should be addressed through regulations applied to domestic as well as imported products as well as to all manufacturers.