Indian tobacco-to-hotels conglomerate ITC is apparently up in arms against foreign investment in cigarette manufacturing, its principal profit source.

Its intense lobbying for blocking foreign direct investment (FDI) in tobacco has not only caused a distinct turnaround in the government’s stance, it has even split government opinion on the matter.
The department of industrial policy and promotion (DIPP), which is responsible for FDI policy, was, at first, a strong supporter of allowing foreign investment in tobacco in existing joint ventures. In a clear case of government flip-flop, the same department recommended a ban on such a move. It moved an inter-ministerial note in October last year, asking for a complete ban on FDI in cigarette manufacturing. However, opinion within government offices appears divided. While the finance ministry is for allowing FDI in cigarettes, the commerce ministry is vehemently standing by its opposing stance. The issue came to fore last year when the foreign investment promotion board (FIPB) considered a proposal by Japan Tobacco International to raise stake in its Indian subsidiary, JTI India, to 74 per cent. The DIPP had, at that time, supported the proposal, allaying concerns that it would lead to raising fresh capacity for cigarette manufacturing. The government does not allow creation of fresh cigarette manufacturing capacity under the current rules. The DIPP’s call for a complete ban on the proposal late last year marks a complete turnaround. Philip Morris, one of the largest tobacco companies in the world, has made similar attempts to bring in FDI to acquire its partner KK Modi’s stake in Godfrey Philips.
ITC is leaving no stone unturned to protect its Indian ownership. It has ensured the government’s nearly 34 per cent stake in the company remains undiluted. With foreign players making desperate attempts to break into the Indian tobacco space, Indian counterparts like ITC are going all out to protect their turf. The matter is expected to come up for discussion at an inter-ministerial meet soon. If the government were to accept the proposal to ban FDI in cigarette manufacturing, it would be the final and telling blow to foreign players seeking a larger share of the Indian pie. (pi)