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Government paves way for FDI in cigarettes

The government has announced that it will consider proposals for the manufacture of cigarettes with foreign direct investment.

Under the present policy, the manufacture of cigarettes requires compulsory licencing under the Industries Development Regulation Act. The proposals are subject to the provisions relating to compulsory licencing under the IDR Act, 1951. The Centre has laid down that companies will have to seek a licence from the government to set up manufacturing units under the IDR Act of 1951.

Market sources indicated that the move toward FDI has become necessary due to falling tobacco prices and the need to attract foreign investment in the post-nuclear phase. Tobacco farmers in Andhra Pradesh are reported to be unhappy with sluggishness in tobacco prices, which was attributed to presence of only three to four large cigarette companies in the country.

The Centre's move was announced on Thursday evening, paving the way for 100 per cent foreign direct investment in cigarette-manufacturing. The entry of multinational companies, thus, is imminent.

It is learnt that the proposal of Rothmans of Pall Mall, which has been hanging fire for almost a year now, will be taken up by the Foreign Investment Promotion Board at its meeting in the first week of September.

Rothmans proposes to make an initial investment of $ 150 million in its fully-owned Indian outfit; but 24 per cent stake is planned to be disinvested after the project goes on stream. Dividend in the first seven years of operation will not be repatriated.

Besides Rothmans, Phillip Morris and BAT Industries, which holds over a 35 per cent stake in ITC, are tipped to enter the country through the 100 per cent route.