India - government set to ban foreign direct investment in tobacco..

December 23, 2009 - The government is all set to accept the recommendations of a ministerial group and ban foreign direct investment (FDI) in tobacco, dealing a blow to the plans of international tobacco firms that have long eyed a bigger presence in the Indian market, e.g., Japan Tobacco International’s (JTIL) proposal to raise stake in its Indian venture to 74% from 50% now.

A decision to ban FDI will draw a line under a long-running issue that has seen hectic lobbying from domestic and foreign players, and will be victory for the health ministry, which had sought a total FDI ban in tobacco. While the government does not allow creation of fresh cigarette manufacture capacity, the current policy lacked clarity on whether FDI is allowed in this sector. The policy had come under attack from various quarters, especially the health ministry.

JTIL, the third-largest manufacturer of cigarettes in the world and the owner of brands such as Camel, Winston, Gold Coast and Salem, had sought the Foreign Investment Promotion Board’s (FIPB) permission to raise its stake in its Indian unit — JTI India — in July and October last year and again in January this year. The company had argued that its proposal was to buy out the shares of the Thakkar family, its Indian partner, and not invest in fresh capacity. When the proposal came up for consideration in January this year, the DIPP deferred a decision on the company’s application, saying it needed more time to finalise the FDI policy for the tobacco sector. In June 2007 JTI Launched WINSTON cigarettes in India.

Foreign tobacco giants have long lobbied for greater FDI in the sector, although local tobacco firms have opposed it.

The move by JTI India comes against the background of strong objections by domestic tobacco companies that forced the government to reject proposals by international tobacco majors like Philip Morris, Rothmans and British American Tobacco (BAT) to set up subsidiaries to sell their tobacco brands. Philip Morris' tobacco proposal was rejected in 1997 but it was given permission to set up a 100 per cent subsidiary to sell food and beverage.

The controversy began in the mid-nineties, when the Indian management of ITC, the country's largest tobacco company, opposed all moves by its UK shareholder BAT, which owns about a third of ITC's shares, to initially increase its stake in the Indian company. It also refused BAT a no-objection certificate to set up a 100 per cent subsidiary.

When the proposal came up for consideration in January this year, the DIPP deferred a decision on the company’s application, saying it needed more time to finalise the FDI policy for the tobacco sector. However, the proposal was bitterly opposed by the health ministry, which argued that it would encourage the growth of the tobacco industry. The CCEA had then directed the inter-ministerial group to take a final call on the issue.

Philip Morris International chairman and CEO Louis C Camilleri has in the past written to former commerce minister Kamal Nath arguing that protectionism was an ineffective tool to address public health objectives and would only entrench existing players.

Dominique Dreyer, Swiss ambassador to India, also wrote to the DIPP a few months ago pressing for an increase in investment by a Swiss affiliate of the US-based Philip Morris in India’s Godfrey Philips. The world’s largest tobacco company has been trying to acquire its partner KK Modi’s stake in Godfrey Philip for some time now.

50 Years of Cancer Control - Tobacco Control in India.. by Kishore Chaudhry - not curent.

Reference: Govt may stub out FDI in tobacco, Rohini Singh, Eeconomic Times, 12/22/2009.

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