Cabinet to consider proposal to ban FDI in tobacco sector

The Union Cabinet is likely to soon consider a proposal to completely ban foreign direct investment (FDI) in the tobacco sector.

Government has been working on this proposal after tightening norms regarding pictorial warnings on cigarette packets.

The Commerce and Industry Ministry has forwarded the final cabinet note for the Cabinet’s consideration, sources told.

“Views of all the concerned ministries, including Health and Finance Ministry was included in the note,” they said.

Currently, FDI is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector. However, it is prohibited in manufacturing of cigars, cigarettes of tobacco and tobacco substitutes.

The proposal, if approved, may be a setback for domestic cigarette manufacturers.

As per the proposal, the ministry has proposed to ban FDI in licensing for franchisee, trademark, brand name and management contracts in the sector, sources said.

It would mean FDI would be totally banned in the tobacco segment in any form.

The ban would also eliminate the possibility of indirect flow of overseas funds to the sector.

The move also assumes significance as India is signatory o the Framework Convention on Tobacco Control, under which the country has the responsibility of reducing consumption of tobacco products.Under new norms introduced by the government, tobacco products would have to carry larger pictorial warnings covering 85 per cent of the packaging space.

Cigarette manufacturers, including Godfrey Phillips, had raised serious concerns over this move.

FDI into the country grew by 29 per cent to USD 40 billion in 2015-16.

Cigarette stocks on Wednesday fell up to 18 per cent, led by Godfrey Phillips, following reports that the Union Cabinet is likely to consider a proposal to completely ban foreign direct investment (FDI) in the tobacco sector.

Shares of Godfrey Phillips India tanked 17.68 per cent, ITC fell by 2.94 per cent and NTC Industries went down by 0.65 per cent on BSE.

Government has been working on the proposal after tightening norms regarding pictorial warnings on cigarette packets.

The Commerce and Industry Ministry has forwarded the final cabinet note for the Cabinet’s consideration, sources told.

“Views of all the concerned ministries, including Health and Finance Ministry was included in the note,” they said.