Tobacco farmers argue for banning FDI but major firms warn of monopoly

Current rules prohibit a foreign entity from investing in the manufacture of all forms of smoking and chewing tobacco products, including cigarettes, bidis and cigars

Business chambers, farmers and cooperatives are divided on the matter of banning all forms of foreign direct investment (FDI) in the tobacco sector.

Two major players, ITC and Godfrey Phillips India, apart from farmer bodies, are on opposing ends of the debate, as were many stakeholders on Wednesday at a meeting organised by the department of industrial policy and promotion (DIPP) to discuss this.

Current rules prohibit a foreign entity from investing in the manufacture of any form of smoking or chewing tobacco product -- cigarettes, cigars, bidis or others. However, FDI is permitted in technology collaboration in any form, including licensing for franchising, trademarking, brand name and management contracts in the tobacco sector.

Health groups have repeatedly said it is difficult to ascertain if foreign funds are used in expanding manufacturing activities. At the Wednesday meeting, chaired by DIPP secretary Ramesh Abhishek, suggestions were invited from 24 industry groups on the matter of FDI, two years after a Cabinet proposal initiated by DIPP sought to ban all such investment. The proposal has languished due to protest by companies.

"The level playing field should remain. There's no need for a change in policy. Most large companies are already here. If you ban a few more, there is not going to be a change in ground reality. It will only perpetuate monopoly," said Krishan Kumar Modi, president of Modi Enterprises. The latter is one of two major stakeholders in Godfrey Phillips India (GPI), the other being US tobacco major Philip Morris. "We are major exporters of tobacco and cigarettes globally and any change to the policy will cause exports to fall," Modi added.

GPI, retailer of the Marlboro brans, is second largest in the domestic market. ITC has about 80 per cent of the cigarette market.  "We are not in support of FDI, since it is against the interest of domestic industry, as well as farmers, since there are already controls on manufacturing and retailing the product,"  said a senior ITC functionary.

On Wednesday, ITC shares closed at Rs 264.6, down 0.6 per cent while GPI's rose 1.8 per cent, closing at Rs 901.1.

Farmer bodies are also divided. "We have told the government that FDI should be scrapped, as it does not help farmers. The argument used by proponents of FDI regarding introduction of new technologies is also baseless," said B V Javare Gowda, president of Federation of All India Farmer Associations (FAIFA). Producers from Karantaka, the second largest tobacco producing state (after Andhra Pradesh), agree, with the Karnataka Tobacco Growers Forum strongly opposing FDI.

However, other groups have continued to support FDI in the sector. According to industry insiders, the gamut of FDI in the sector has remained low, with newer investments severely discouraged by the government and no new licences given for manufacturing.