Niti Aayog, Finance Ministry split over ban on tobacco FDI

The Niti Aayog and the finance ministry seem to be at cross purposes over a proposal by the commerce ministry to completely ban foreign direct investment (FDI) in the tobacco sector, with the government think tank raising concerns over the fact that if it happens, then the domestic tobacco companies’ already minu-scule market share in the country may be severely impacted. Also, it fears that a complete ban may lead to increased smuggling of foreign branded cigarettes into the country.

According to sources, the commerce ministry’s main objective behind suggesting a complete ban on FDI in tobacco sector was to eliminate the possibility of indirect flow of overseas funds to the sector in the country. The pr-oposal has received finance ministry’s backing also.

At present, FDI is prohibited in manufacturing of cigars, cigarettes of tobacco and tobacco substitutes.

Now as per the proposal of the department of industrial policy and promotion (DIPP of the commerce ministry), it could also be banned in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contract in the tobacco sector.

Domestic tobacco companies are learnt to have held hectic negotiations with the government over the proposed move, and have argued that if this happens, then whatever minuscule market share they have in the Indian tobacco market, will be wiped out.

Indian companies have a 1 per cent to 2 per cent share in the domestic tobacco market.

Indian companies have conveyed to the government that foreign tobacco companies dominate the Indian markets and if the government goes ahead with its decision to completely ban FDI in the tobacco sector, then it would be their market share which will be affected, whereas the foreign companies will have nothing to lose.

They have placed their case before Niti Aayog also, which is said to have taken a serious note of their point of view, sources said, adding that the think tank’s objection to the proposal also stems from the fact that the decision could be counter-productive as it may lead to increased smuggling of foreign brands of cigarettes in the country.

According to sources privy to the developments, the Niti Aayog has conveyed to both the finance as well as the commerce ministries its reservations against the proposal.

Though sources informed that discussions may take place between the Niti Aayog and commerce ministry on the matter, the issue for now appears to have run into rough weather.