Japanese Firm Tests FDI Policy in Tobacco

Source from:  Surajeet Das Gupta & Ashish Sinha / New Delhi July 04, 2008 07/04/2008

The issue of foreign direct investment (FDI) in the tobacco industry may be rekindled with Japan Tobacco International Ltd (JTIL), the world's third largest tobacco company, applying to the Foreign Investment Promotion Board (FIPB) to raise its stake in its Indian venture from 50 to 74 per cent. The remaining equity of the company is with Indian domestic investors. The company, which launched its Winston brand of cigarettes in Bangalore, Kerala and Mumbai last year, plans to invest $100 million to expand its presence in one of the world's fastest growing markets. The Rs 17,000-crore branded cigarette market is growing at 8 to 10 per cent. The company also owns the famous Camel brand. The company acquired its Indian operations after it bought RJ Reynolds globally. RJ Reynolds had a 50:50 joint venture with the Delhi-based Modi family, which later sold its stake. "Funds are required to restructure an existing business and to invest in future growth potential," a JTI India spokesman said, adding that JTI India already holds a valid licence to make cigarettes. The proposal is expected to be considered at the next meeting of FIPB. The move by JTI India comes against the background of strong objections by domestic tobacco companies that forced the government to reject proposals by international tobacco majors like Philip Morris, Rothmans and British American Tobacco (BAT) to set up subsidiaries to sell their tobacco brands. Philip Morris' tobacco proposal was rejected in 1997 but it was given permission to set up a 100 per cent subsidiary to sell food and beverage. The controversy began in the mid-nineties, when the Indian management of ITC, the country's largest tobacco company, opposed all moves by its UK shareholder BAT, which owns about a third of ITC's shares, to initially increase its stake in the Indian company. It also refused BAT a no-objection certificate to set up a 100 per cent subsidiary. Confronted with growing domestic opposition, Murasoli Maran, industry minister in the United Front government in 1996-98, indicated that he was opposed to raising FDI limits in tobacco and that no fresh industrial licences would be issued to the industry. However, his successor in the first BJP-led government, Sikandar Bhakt, pushed successfully for allowing 100 per cent FDI in the tobacco industry but only on a case-by-case basis. Sustained domestic opposition and a growing anti-smoking lobby, however, ensured that no tobacco company approached the FIPB with a proposal. Enditem