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Sunday, Feb 03, 2002

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Agri-Biz & Commodities - Tobacco

Govt may allow FDI in tobacco sector

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IN a major departure from its existing policy, the Union Government is likely to allow foreign direct investments (FDI) in the tobacco sector in the country, according to the Tobacco Board Chairman, Dr P. Dayachari.

He, however, said these FDIs could be confined to development of leaf tobacco through joint ventures and establishment of 100 per cent export oriented units for the manufacture of cigarettes.

Dr Dayachari told newspersons here on Saturday that the Government had considered most of the recommendations of the Tobacco Board and incorporated them in its export strategy. Allowing FDIs was one of the requests made by the board to mitigate the plight of the tobacco farmers. The board also wanted introduction of contract farming system in the tobacco sector.

The Centre, he said, had stated that ``perhaps FDIs may be allowed'' as suggested by the board. The Tobacco Board, in turn, has already held discussions with certain foreign companies whether it would be possible for them to take up tobacco leaf production, exclusively meant for exports, in some of the black cotton soils of Andhra Pradesh.

Explaining the medium term export strategy for tobacco and tobacco products, Dr. Dayachari that this industry, which employed 2.5 crore people in the country, would not survive if exports were not enhanced. Hence, in the next five years, the board had targeted to increase the value of our tobacco exports from the current level of Rs 1000 crores to Rs 2,500 crores.

He said that the board had also submitted a proposal to the Centre for creating a ``Special Purpose Vehicle'' (SPV) that would take care of tobacco auctions and exports. A consultant was entrusted with task of working out the details of this proposed outfit meant for taking up market intervention operations.

It was proposed that the SPV should have an equity base of Rs 25 crores. While the Tobacco Board and the State Trading Corporation together would have an 11 per cent stake in the equity, the tobacco growers and financial institutions would have 25 per cent and 15 per cent stake respectively. The tobacco trade would bring in the balance. The SPV, once formed, would raise Rs 100 crore through external borrowings.

As per Dr Dayachari, the Union Government was also actively considering creation of a Price Stabilisation Fund for tobacco, coffee and tea so as to insulate the farmers from vagaries of price fluctuations. The National Council for Applied Economic Research (NCAER), for which the proposal was referred to, had also recommended for creation of such a fund.

Despite the global campaign against consumption of tobacco, the worldwide tobacco consumption was increasing at a rate of 2 per cent per annum.

On the other hand, the yearly production of tobacco was increasing only by 1 per cent. In India, the consumption of domestically manufactured cigarettes had declined but not the total number of cigarettes consumed by smokers. The reason for this could be the clandestine inflow of foreign cigarettes into the country, the Tobacco Board Chairman said.

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