India Prohibits FDI in Cigarette Manufacturing

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Apr. 9 – The Indian government is officially prohibiting foreign direct investment in the cigarette manufacturing sector with the ban applicable even in tax-free special economic zones.

Cigarette manufacturing will now be on the prohibited list of FDI. “FDI will be prohibited in the manufacture of cigarettes, whether it is for domestic consumption…or for exports,” Home Minister P. Chidambaram told The Economic Times after a meeting of the Cabinet Committee on Economic Affairs.

The announcement to prohibit foreign investment in cigarette manufacturing comes after reports that Japan Tobacco wanted to increase its stake in its Indian subsidiary arm from 50 percent to 74 percent.

India’s cigarette industry is expected to grow in the future as disposable income in the country rises, bringing with it many lifestyle changes. Cigarettes are sold mainly through newspaper kiosks. In 2008, industry sales dropped when the government strictly implemented a no smoking ban in public places.

The Indian cigarette market is dominated by local manufacturer ITC Limited followed by Godfrey Phillips and VST. ITC Limited leads the market with its roster of popular brands: Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake.

The single largest shareholder in ITC, British American Tobacco, holds an estimated 32 percent stake in the Indian company. The company had  tried to raise its stakes in ITC in the past but was rejected.