To Ban Or Not To Ban

Rise in illicit cigarette trade and losses to tobacco farmers have led to a high decibel demand for a complete ban on FDI in the tobacco sector

- Ashish Sinha

WARNING: Foreign direct investment in the tobacco industry is injurious to farmers’ economic health. Just as the warning on cigarette packs is intended to make people think twice before lighting up, this one by the tobacco farmers, who are calling for a ban on FDI in the sector, has put the central government in a quandary. At the heart of the matter is the declining income of tobacco farmers who blame their plight on the higher taxation on cigarettes and a concomitant increase in illegal trade as well as shrinking export of tobacco on one hand, and tobacco MNCs setting shop in India on the other.

The central government seems to be caught between a wall and a hard place, as its growth strategies since it assumed power in 2014 have hinged on attracting more and more foreign direct investment (FDI) and driving domestic consumption by raising farmer’s income. To ban FDI or not is the key question.

To begin with, the tobacco industry is one of the most regulated and taxed sectors in the country. Currently, although FDI is prohibited in manufacturing of cigars, cigarettes and tobacco substitutes, it is permitted in technology collaboration in any form, including licensing for franchise, trademark, and management contracts in the sector.

Facing stricter legal norms and health compliance pressure in developed countries in North America and Europe, some of the biggest multinational tobacco firms like Philip Morris, British American Tobacco and Japan Tobacco Inc., among others, have been looking to enter and expand in developing nations.