Law Min nod to ban FDI in wholesale tobacco trade

The law ministry has said it favours the commerce ministry’s move to ban foreign direct investment (FDI) in wholesale trading in tobacco.

Currently, the manufacturing of tobacco and tobacco substitutes are under the prohibitory list of the FDI press note, while such investment is allowed up to 100 per cent in wholesale trading of cigarettes and other related products under the cash and carry category — albeit under the approval route.

Under the guidelines, foreign tobacco companies bring in money for branding and advertising, while selling to retailers directly can only be done by their Indian joint venture partner.

Senior official sources closely working on the development said the commerce ministry has been proposing to put a complete ban, based on representations of the health ministry to cut tobacco production and usage. Incidentally, some time ago, Japan Tobacco Ltd had made a representation to the Foreign Investment Prom-otion Board to increase its stake from 51 per cent to 74 per cent in its Indian joint venture.

Officials said the law ministry felt the circumstances considered by the commerce ministry for banning FDI in the manufacturing of tobacco also applies for trading.

“The same conditions can trigger a complete a ban on trading as well,” added a source. The conditions which primarily rule in favour of a ban on manufacturing include issues with domestic production, domestic employment and overall health conditions.

Infusing equity in Indian joint ventures has triggered apprehension that foreign companies may be circumventing the prohibition on FDI in manufacturing, officials say. That was how a view was sought from the law ministry. “Otherwise, the issue may be misinterpreted as a non-tariff barrier for an industry at the WTO (World Trade Organisation) level,” explains a source.

Tobacco cultivation, processing, marketing, manufacture and exports are a source of employment to around 36 million people in the country. The ministry of agriculture has started advising farmers to alternate tobacco production with other cash crops like sugarcane and cotton. FCV is the cigarette-producing variety.

On the employment side, the ministry of commerce is coordinating with the ministry of rural development to run the tobacco employment schemes in the processing industry under other government employment guarantee schemes. In India, the tobacco enterprise contributes Rs 20,000 crores annually to the national economy through foreign exchange earnings and internal excise revenue.