The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved the proposal from the department of industrial policy and promotion (DIPP) to ban foreign direct investment in the tobacco sector, jeopardising plans of Japan Tobacco, BAT and the Altria Group in India. With this ban, India would be the only country in the World to go in for such a stringent move. The ban would shut the door permanently on Japan Tobacco’s proposal to invest $100 million into its Indian subsidiary. The move will leave the field wide open for ITC to increase its dominance in the growing cigarette market. In India, three major cigarette players dominate the market, primarily ITC with more than 50% market share. Godfrey Phillips and VST are two major players after ITC. The move to ban foreign investments in tobacco has been controversial since the proposal came soon after Japan Tobacco announced its intention to raise its stake in the local unit to 74% from 50%. Also, British American Tobacco, the single largest shareholder in ITC, has seen its desire to take a controlling stake in the Indian unit thwarted consistently without any adequate reasoning. BAT holds about 32% in ITC, and the government-controlled LIC and Unit Trust of India’s government administrator are the other big shareholders. JTIL’s proposal was to raise its stake in its Indian subsidiary—JT International (India) Ltd—to 74% from 50%. The company owns the Camel and Winston cigarette brands. The Indian business has accumulated losses of Rs 127.74 crore, which the parent company wants to turn around through restructuring. JTIL acquired its Indian operations after it bought out RJ Reynolds globally. RJ Reynolds had an equal joint venture with the Delhi-based Modi family, which later sold its stake. Japan Tobacco had informed FIPB that infusion of additional foreign equity would not result in expansion of the Indian joint venture’s capacity—a key condition of the government when it comes to approving investments in the sector. Although the stake increase was not to have resulted in an increase in the Indian unit’s licenced capacity, the health ministry opposed the proposal. The proposal was being considered by the Foreign Investment Promotion Board (FIPB), which took it up thrice and deferred it on all occasions as the pitch for ban on FDI in tobacco gained momentum. The current policy lacks clarity on whether FDI is allowed in the sector, though the government does not allow creation of fresh cigarette manufacture capacity. The branded cigarette market in India is worth Rs 17,000 crore annually. Although India is the second largest producer of tobacco in the world after China, according to a study, cigarettes account for less than a fifth of total tobacco consumption. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country.
