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India: Govt''s Plan to Ban all Tobacco FDI to Hit GPI Source from: The Times of India 04/28/2016 The government's proposed ban on allowing foreign direct investment for manufacture of tobacco products through trademark or licensing route is expected to hit a majority of the tobacco business of Godfrey Phillips India (GPI), the KK Modi-controlled company, which has a licensing arrangement with US-based Philip Morris for the Indian market. GPI's arrangement extends to its brands such as Four Square, Cavender's, Red & White and Marlboro, which would be pummelled by the government's latest move to restrict FDI. While Modi plans to take up the issue with the government, he is not averse to a legal challenge either. The government does not allow FDI in manufacturing of cigars and cigarettes. It is now looking to plug all possible loopholes by putting an end to collaboration in any form, including licensing for franchise, trademark, brand name and management contract. When contacted by TOI, K K Modi confirmed hearing about the possibility of such a ban and said he would take it up with the government since he feels the move neither helps industry nor would it improve health of people. "This is not in public interest. It will only increase the monopoly of ITC in the Indian market and lead to a situation where only the established brands would perpetuate." He likened the proposal to the one during the 1970s when George Fernandes had forced foreign brands such as Coca-Cola to leave the country. "If such a move does get cleared, it would become a repetition of that old move." He also indicated that if it doesn't get resolved through talks, then it could lead to a legal dispute. The government's intention to put in place fresh curbs has already pulled down tobacco stocks, led by GPI. The company's shares, however, rose 1.5% on the NSE on Tuesday. ITC was up 1.7% while the Nifty remained flat. Government officials said that the idea was to plug any possibility of backdoor entry into the cigarette manufacturing space, although sale of imported cigarettes would still be allowed. Even as the government has sought to seek FDI across sectors, including alcohol, tobacco has remained a tightly policed sector. In 2010, the government formally banned FDI in manufacture of tobacco products although the curb was placed on new equity investments. Earlier, 100% FDI was allowed with prior government approval, subject to obtaining manufacturing licence. Even the entry of new domestic manufacturers is not being allowed in the sector with the department of industrial policy and promotion turning down a proposal from DS Group a few years ago. Enditem |