While tobacco farmers and cooperatives want the government to ban all forms of foreign direct investment (FDI) in the sector, companies have argued that any such move would lead to monopolisation and affect exports.
Stakeholders from the sector found themselves on opposite ends of the table on Wednesday at a meeting organised by the Department of Industrial Policy and Promotion (DIPP) to discuss FDI norms for the sector.
Current rules prohibit a foreign entity from investing in the manufacture of any form of smoking or chewing tobacco product -- be it cigarettes, bidis, cigars or others. However, FDI is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector.
Health groups have repeatedly pointed out that it is difficult to ascertain if foreign funds are used in expanding manufacturing activities by existing Indian corporates such as ITC Limited which is the largest producer of cigarettes in the country. London-headquartered British American Tobacco holds a stake in the company, though it has diminished over time.
On Wednesday, smaller farmers pointed out to the government that the revenues emanating from the tobacco trade had historically not reached farmers who continued to remain poor. The Federation of All India Farmer Associations, the largest body representing tobacco farmers, said FDI only continued to help major domestic companies that commanded the retail ecosystem, thereby restricting smaller companies and dictating prices to small farmers.
On the other hand, big business has a different view. "The level playing field should remain. There's no need for a change in policy. Most large companies are already here. If you ban a few more, there's not going to be a change in ground reality. It will only perpetuate monopoly", said Krishan Kumar Modi, president of Modi Enterprises. Modi Enterprises is one of the two major stakeholders in Godfrey Phillips India, one of the largest players in the domestic cigarette industry — the other one is US tobacco major Philip Morris.
We are major exporters of tobacco and cigarettes globally and any change to the policy will cause exports to fall, Modi added.
However, according to industry insiders, the gamut of FDI in the sector has remained low with newer investments severely discouraged by the government.
The DIPP had earlier proposed to ban all FDI in the tobacco sector and had begun preparing a cabinet note in this regard.