Ministries differ over FDI in tobacco processing

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Ambarish Mukherjee

New Delhi, Oct.7

INTER-GOVERNMENTAL differences have cropped up on the issue of allowing foreign direct investment (FDI) in tobacco processing.

While two Central Ministries are in favour of a proposal from the US-based Universal Leaf Tobacco Company for tobacco processing and exports from India, two other Ministries have opposed it.

The issue is hanging fire since August when Universal Leaf Tobacco Company approached the Foreign Investment Promotion Board (FIPB) seeking permission to set up a wholly-owned subsidiary to purchase raw tobacco and arrange for such green tobacco to be processed by third parties and exporting 75 per cent of the processed tobacco.

The remaining 25 per cent, according to the company's proposal, would be sold in the domestic market.

The FIPB had consulted four Ministries during the past three months and yet failed to reach a decision because of the divergent views presented to it.

The Ministry of Agriculture is involved as tobacco is a crop, the Ministry of Health too has been roped in because tobacco consumption is a health hazard, the Ministry of Commerce is involved since the proposal involves exports and the Department of Industrial Policy and Promotion (DIPP) too is present to clarify on policy issues.

Now, here's what each of them has to say.

The Ministry of Agriculture has informed the FIPB that since India is one of the signatories to the WHO Framework Convention on Tobacco Control (FCTC), it does not support the proposal.

It also pointed out that at present no scheme was being implemented by the department for development of tobacco cultivation.

The Ministry of Health and Family Welfare too cited the same WHO framework and opposed the proposal.

The Department of Commerce, in its written communication to the FIPB, stated that it had no objection to the proposal. Incidentally, tobacco cultivation is carried out under the overall control of the Ministry of Commerce, which decides the area of land on which tobacco would be cultivated each year.

Sources said that at an FIPB meeting, the Chairman pointed out that this particular proposal was not for manufacturing and production of cigarettes but for purchasing raw tobacco, arranging for such green tobacco to be processed by third parties, and exporting it.

The board Chairman is of the opinion that the company's proposal would not add to the total availability of raw tobacco in the country as tobacco cultivation is carried out under the overall control of the Ministry of Commerce.

It was also pointed out that although the area allocation for tobacco cultivation is made under controlled conditions, the tobacco cultivation and its production are still increasing.

The DIPP is of the view that the proposal is not strictly against rules and the objections raised by the Ministry of Agriculture and Ministry of Health need to be re-examined.

Incidentally, the FIPB had, in an earlier case, granted permission to the UK-based Standard Commercial Tobacco Company for similar activities.

(This article was published in the Business Line print edition dated October 8, 2005)
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