Govt likely to stub out FDI in tobacco: Sources

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The government may ban foreign direct investment (FDI) in tobacco, reports CNBC-TV18 quoting sources. A policy decision to this effect is likely to be taken shortly.

Sources said imports via open general licence as well as prospective franchisee operations may also be banned. However, government may allow FDI in SEZ's if the entire production is exported.

The move will leave the field wide open for ITC to increase its dominance in the growing cigarette market. In India, three major cigarette players dominate the market, primarily ITC with more than 50% market share.  Godfrey Phillips and VST are two major players after ITC

A total FDI ban on tobacco will put a spanner in the plans of international tobacco companies who have set their eyes on India. For instance, Japan Tobacco International had in January last year proposed to raise its stake in its Indian venture JTI India to 74% from the current 50%. JTIL is the third-largest manufacturer of cigarettes in the world and the owner of brands such as Camel, Winston, Gold Coast and Salem. Others who were waiting to broaden their scope in India include BAT and the Altria Group. Altria Group hold 25% stake in Godfrey Phillips India and BAT holds about 32% in ITC.

The branded cigarette market in India is worth Rs 17,000 crore annually. Although India is the second largest producer of tobacco in the world after China, according to a study, cigarettes account for less than a fifth of total tobacco consumption. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country.