NEW DELHI: The government is considering tightening the foreign direct investment (FDI) conditions for the tobacco sector to cut down on any room available for promotional activities and curb smuggling, a senior official said.
The current policy explicitly prohibits FDI in manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. However, technology collaboration, licensing for trademark, brand name and management contracts are allowed in the sector.
“There is a need to control promotional activities also which will help in curbing smuggling also,” the official added. The draft of proposed changes have been circulated among other ministries and departments for consultations by the Department for Promotion of Industry and Internal Trade (DPIIT).
Promotional activities include proxy advertising, brand promotion and creating brand awareness.
While efforts are on to curb smuggling, the Ministry of Commerce and Industry is taking steps to facilitate the local tobacco farmers most of which are concentrated in Andhra Pradesh. Karnataka and Telangana are other producers of the tobacco leaf.
“We are saying that FDI in the tobacco sector is prohibited and its promotional activities should also be prohibited as the companies are trying to circumvent norms,” the official added.
Late last month in June Commerce and Industry Minister Piyush Goyal had held a meeting with tobacco farmers in Hyderabad where he assured them that the Prime Minister is very sensitive about farmers’ problems and the government will do everything to protect their interests.
India is among the top three tobacco growing countries in the world. Tobacco exports in 2023-24 stood at $ 1.44 billion dollars which is up 19.5% in dollar terms.
India’s largest cigarette maker ITC has also flagged the issue of smuggling of cigarettes for the past many years.. The smuggled cigarettes are 50% cheaper in the domestic market compared to domestic brands.
“It is estimated that illicit trade causes an annual revenue loss of around Rs 21000 crores to the Exchequer. The illicit cigarette trade also has a deleterious impact on farmers and farm workers engaged in the tobacco value chain,” ITC said in its latest annual report
The growth of illicit cigarette trade has also resulted in a sharp drop in demand for Indian tobaccos in the domestic market. Tobacco production has dropped by 40% between 2013-14 and 2021-22, resulting in shrinkage in earnings and loss of an estimated 35 million man-days of employment in tobacco growing areas.
In 2016 too the ministry had floated a proposal to put a complete ban on FDI in tobacco which included putting an end even to licensing for franchisee, trademark, brand name and management contracts in the sector. However, no decision could be taken due to concerns raised by tobacco farmers’ associations and some companies.
Source: The Financial Express
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