The Department of Industrial Policy and Promotion in the Commerce Ministry proposes to scale back the Foreign Direct Investment ceiling for the tobacco industry from 100 to 74 per cent and insert a caveat that cigarettes manufactured in the new ventures or in upgraded facilities must be mainly for consumption outside India.
Sources close to the development said, the department, which is responsible for the policy on FDI, is finalising a cabinet note aimed at a comprehensive review of the policy on tobacco.
Under current guidelines, 100 per cent FDI is permitted subject to companies manufacturing "cigars and cigarettes of tobacco and manufactured tobacco substitutes" obtaining an industrial licence under the Industries (Development and Regulation) Act, 1951.
The proposals also need approval from the Foreign Investment Promotion Board. The sources cited the policy review as one of the reasons the FIPB deferred a proposal from Japan Tobacco International Ltd. JTIL India has a licence but the change in the foreign investment requires an FIPB approval.
Earlier this year, JTIL sought FIPB approval to raise its stake in Japan Tobacco International (India) Ltd that makes Camel and Winston cigarette brands. The move in India was part of the global acquisition of RJ Reynolds. At present, the Indian arm is a 50:50 joint venture between JTIL and the Modis.
Even as a review is being undertaken, the JTIL proposal has already faced objections from domestic tobacco companies such as ITC and the ministry of health. The health ministry which is spearheading an anti-tobacco campaign and recently imposed a ban on smoking in public places has sought a ban on FDI in tobacco apart from asking the commerce department to put the commodity on the negative list under all free trade agreements that India signs.
Foreign investment in tobacco has been a contentious issue for years. Philip Morris, the manufacturer of famous brands like Benson and Hedges and Marlboro, was refused approval to set up its wholly-owned subsidiary in 1997 following objections from its Indian partner. The ITC management not only opposed all moves of its UK shareholder BAT to increase its stake in the Indian company but also refused it a no-objection certificate to set up 100 per cent subsidiary.