January 25, 2011 - Foreign cigarette companies could soon find it harder to sell their products in India. The government is looking into a proposal to ban foreign direct investment (FDI) in the wholesale marketing arms of these companies. It is also exploring the possibility of shifting the import of tobacco products from the open general licence (OGL) to the restricted list.
Both moves will impact companies like Japan Tobacco International, Philip Morris and others that have set up fully-owned marketing subsidiaries through which they not only sell their global brands in the domestic market, but also bring in funds to support local operations.
After more than two years of deliberations, the government banned FDI in the manufacture of cigarettes last year. (India - more on govt ban on foreign direct investment..) Despite this, however, the health ministry and NGOs non-government organizations) have complained that foreign cigarette companies use the marketing services route as a back door for investment and to support sales in India. The department of economic affairs feels that the ban on FDI in manufacturing does not adequately guard against circumvention by foreign tobacco companies by using the marketing services route. It argues that the ban should be extended to marketing.
Japan International, which has a 50 per cent stake in joint venture JTI India to manufacture cigarettes in India, last year set up JTI Wholesale India — a wholly-owned subsidiary — through which it can continue to bring money into the country and sell its products in the wholesale market. (Japan Tobacco operates a joint venture in India, JT International (India), with the Mumbai-based Thakkar family.)
Philip Morris, which has a minority stake in Godfrey Phillips India controlled by the K K Modi group, has set up IPM Wholesale Trading — in which it is a majority shareholder — to promote its international brands.
The department of industrial policy & promotion (DIPP) under the ministry of commerce has suggested that existing policy, which allows 100 per cent FDI in wholesale trading, should be amended to exclude tobacco. DIPP has also suggested that tobacco products be excluded from the OGL list to make symmetric its treatment vis-à-vis imports. That would plug the possibility of new foreign companies using a combination of the two routes to sell tobacco products in India.
Reference: Govt may filter out FDI in tobacco marketing
Surajeet Das Gupta, Business Standard, 1/24/2011.
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