Japan Tobacco Fumes over FDI Rejection

Source from:  Express India 06/03/2010

New Delhi: Sore over policy flip-flops by the government on allowing foreign direct investment (FDI) in tobacco, Japan Tobacco International Ltd (JTIL) is planning to take it to the court. The company's proposal to infuse Rs 25 crore in its Indian joint venture was recently turned down by the Foreign Investment Promotion Board (FIPB) because the changed policy bars foreign investment in cigarette manufacturing. The proposal was originally made two years ago when 100% FDI was allowed in cigarette manufacturing. However, since some sections of the previous UPA government including its health minister A Ramadoss opposed it, the matter was referred to a cabinet sub-committee. JTIL - which makes cigarette brands like Winston, Camel, Gold Coast and Mild Seven - feels that it has been a victim of inconsistency in government policy. While people close to JTIL confirmed its plans to move an appropriate court against the government, a company official declined to comment. "We're not in a position to comment on this matter right now," he said. Even within the government, opinion is still divided on allowing foreign direct investment in tobacco. "The sequence of events leading to the government's decision to ban FDI in cigarette manufacturing does show a series of flip-flops on the part of the department of industrial policy and promotion (DIPP)," said a senior government official who did not want to be quoted. The DIPP, which formulates FDI policy, had initially supported foreign investment in cigarette manufacturing in an existing JV, but later moved an inter-ministerial note for banning it. The issue first came up in June, 2008, when the FIPB considered JTIL's proposal to raise stake in its Indian subsidiary, JTI India, from the existing 49% to 74%. This entailed an FDI inflow of Rs 25 crore. JTIL had said that it was bringing in fresh money to restructure its JV with India's Thakkar family. The JV is currently in the red with accumulated losses of over Rs 127 crore. The DIPP had then noted that JTI's proposal was not for fresh capacity in cigarette manufacturing, but for enhancing FDI to 74% and supported the proposal. A decision on the proposal was, however, deferred on the ground that wider discussions were required on the subject. However, in a turn of events, the DIPP moved a Cabinet note in October 2009, proposing a complete ban on FDI in cigarette manufacturing, citing the health hazards of smoking. Enditem