FDI in Tobacco: Growers, Manufacturers Divided

Source from:  thehindu.com 05/17/2007

A. Saye Sekhar HYDERABAD: Foreign Direct Investment (FDI) in the tobacco sector remains a contentious issue with multiple interest groups remaining divided over the same. However, will the Centre allow FDI in the sector remains a moot question with Union Commerce Minister Kamal Nath assuring growers' representatives that the `Government will look into it.' Growers' representatives have stepped up the demand for FDI. While exporters are pressing for FDI only in the processing of tobacco, the manufacturing sector is totally opposed to it. Former TDP MP and growers' association leader Yalamanchili Sivaji said the price realisation for producers was not even one per cent of the earnings of manufacturers in India, while it was 26 per cent in Brazil. He brushed aside the contention of exporters and manufacturers over the quality of tobacco produced in India. Predatory pricing However, representatives of trade contend that a foreign buyer would jack up prices of raw tobacco on the auction platforms and Indian companies could not offer those perked-up prices, Maddi Venkateswara Rao, President of the Indian Tobacco Association, said. A few export houses are strongly favouring joint ventures with international companies in threshing and exporting of tobacco. The biggest manufacturer, ITC, is against FDI in the sector. "Worldwide experience reveals that FDI in the tobacco sector leads to a massive increase in contraband trade. Given the high rates of taxes on cigarettes in India, smuggling provides an attractive tax arbitrage opportunity. This not only deprives the Exchequer of massive revenues, but causes huge damage to the bona fide domestic industry. It is for this reason that China has not allowed FDI in the tobacco sector,'' Nazeeb Arif, Vice-President of ITC, said. Union Minister of State for Commerce Jairam Ramesh said: "If the FDI is for 100 per cent exports, that becomes our priority. It is true that ITC picks up at least 70 per cent of the tobacco produce. That is why we want to examine the demand on its merits. It is neither to favour ITC, nor to cause loss to it,'' he said. Enditem