Commerce Ministry Considers Tightening FDI Norms In Tobacco Sector

New Delhi, Jul 29 (KNN) The Commerce and Industry Ministry is reportedly developing a proposal to further restrict foreign direct investment (FDI) in the tobacco sector.

This initiative aims to curb promotional activities and reduce smuggling, as some firms are allegedly attempting to circumvent existing regulations.

Currently, FDI is prohibited in the manufacturing of tobacco products such as cigars, cheroots, cigarillos, and cigarettes.

However, it is permitted in technology collaboration, including licensing for franchise, trademark, brand name, and management contracts within the sector.

An official, speaking on condition of anonymity, stated, "FDI in tobacco is prohibited, and there is a need to control the sector's promotional activities as well. Some companies' promotional efforts may inadvertently foster a system that increases smuggling."

The Department for Promotion of Industry and Internal Trade (DPIIT) has circulated a draft note seeking input from various ministries on the matter. The proposal aims to address concerns about proxy advertising, brand promotion, and other methods of creating brand awareness.

This is not the first time such measures have been considered. In 2016, the ministry proposed a complete ban on FDI in the tobacco segment, including licensing for franchises, trademarks, brand names, and management contracts.

However, the proposal did not come to fruition due to concerns raised by tobacco farmers' associations and some companies.

India's commitment to the World Health Organisation's Framework Convention on Tobacco Control adds significance to the FDI matters in the tobacco sector, as the country has a responsibility to reduce tobacco product consumption.

The domestic tobacco industry is primarily dominated by ITC Ltd.

In a broader context, FDI equity inflows in India declined by 3.49 per cent to USD 44.42 billion in 2023-24, compared to USD 46.03 billion in the previous fiscal year. This decrease was attributed to lower investments in sectors such as services, computer hardware and software, telecom, auto, and pharmaceuticals.

Overall, total FDI, including equity inflows, reinvested earnings, and other capital, saw a marginal decline of 1 per cent to USD 70.95 billion in 2023-24 from USD 71.35 billion in 2022-23, according to data from the DPIIT.

(KNN Bureau)