Foreign direct investment in tobacco: DIPP meets stakeholders

New Delhi: Farmer associations and industry on Wednesday shared mixed views in a meeting called by the commerce and industry ministry on issues related to foreign direct investment (FDI) in the tobacco sector.

The meeting was chaired Department of Industrial Policy and Promotion (DIPP) Secretary Ramesh Abhishek here. Currently, FDI is prohibited in manufacturing of cigars, cigarettes and tobacco substitutes.

However, it is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector. Krishan Kumar Modi, Chairman, Modi Enterprises said the current FDI policy in the sector should continue without any change.

"There is no need to bring (FDI) restrictions because other countries will also put restrictions and we are a major exporter of products such as cigarettes," he said after the meeting.

Modi added that a level paying field should remain for both domestic and foreign players in the country.

"Most of the large companies of the world are already here. So, if you ban few more that is not going to change the ground reality but on the other hand it will perpetuate monopoly," he said.

He said that not much FDI has come into the sector as no new license to manufacture are being given. Representative of Peridepi Tobacco Farmer Society Yashwanth K C said FDI should not be banned in the sector as new technologies would help in getting remunerative prices to farmers.

"We are for FDI. We invite the technologies because for farmers. Markets have stagnated for so many years. It is also occupied by limited players and they have exclusive control over commodity and the trade.

"Entry of multi national firms in the sector here would provide a level playing field. If we have multiple players, there will be more competition and farmers will get multiple choices," he told PTI.

However, Federation of All India Farmer Associations (FAIFA) and Karnataka Tobacco Growers Forum (KTGF) strongly opposed FDI in the sector. They want complete prohibition of foreign investment in the segment.

"We have modern technologies and we do not want any kind of FDI in the sector," FAIFA President B V Javare Gowda said.

Sharing similar views, KTGF President Vikramraj Urs said that the association asked the government to put restrictions on FDI. Today's meeting assumes significance as the DIPP, under the ministry, had earlier in 2016 floated a proposal to put a complete ban on FDI in the tobacco segment.

In that proposal, the ministry had proposed to ban FDI in licensing for franchisee, trademark, brand name and management contracts in the sector, which mean FDI would be totally banned in the tobacco segment in any form.

However, the government could not take any decision on the matter due to concerns raised in certain quarters, including farmers associations and companies like Godfrey Phillips.

The domestic tobacco industry is mainly dominated by ITC Ltd, which controls over 78 per cent of the segment.

Representatives from US India Business Council, Virginia Tobacco farmers Associations, Ficci, Andhra Farmers Welfare Association, Federation of All India Farmers Associations (FAIFA) and All India Bidi Industry Association are also among the 24 groups participated in the meeting.

The meeting was also important as domestic firms are complaining over tobacco rules in India, saying it discriminates against cigarettes through high taxation and graphic pictorial warnings, thereby promoting smuggling.

Putting a complete FDI ban also assumed importance as India is signatory to the World Health Organisations (WHO) Framework Convention on Tobacco Control, under which the country has the responsibility of reducing consumption of tobacco products. FDI into the country grew by 9 per cent to USD 43.48 billion in 2016-17.