Foreign Direct Investment policy changes in India upset Japan Tobacco International

Japan Tobacco International is planning to take the Indian government to court over its policy changes on allowing FDI into the country. The company had proposed to infuse Rs 25 crore in its Indian JV but the Foreign Investment Promotion Board (FIPB) rejected it because the changed FDI policy bars foreign investment in cigarette manufacture. Japan Tobacco International initially made the investment proposal two years ago when the Indian government was still allowing 100% FDI in cigarette manufacturing.

The proposal was however rejected by some sections of the previous UPA government forcing the referral of the matter to a cabinet sub-committee. The company is taking the government to court because it feels it has been the victim of government policy discrepancies. Japan Tobacco International manufactures brands such as Winston, Camel, Gold Coast and Mild Seven.

Sources confirmed that the company plans to move an appropriate court against the government but company officials would not comment on the matter. Reports say that even opinion in the government has recently been divided on FDI in tobacco. A senior government official was quoted saying that the string of events leading to the decision to bar FDI in cigarette manufacture did show a sequence of flip-flops on the part of the department of industrial policy and promotion (DIPP).

The DIPP formulates FDI policy in India and had initially supported FDI in cigarette manufacturing in an existing JV only to later move an inter-ministerial note that banned it. In 2008, the FIPB considered JTIL’s proposal that sought to raise its stake in its Indian subsidiary, JTI India from 49% currently to 74% with an FDI inflow of Rs 25 crore.The company had planned to invest new funds for restructuring its JV with India’s Thakkar family but that never happened and the JV is currently in red, accumulating losses of over Rs 127 crore.

The DIPP had initially supported JTI’s proposal arguing that it was not for new capacity in cigarette manufacture but meant to enhance FDI to 74%. However, in October 2009, the DIPP, through a cabinet note, proposed a complete ban on FDI in cigarette manufacture alluding to the dangers of smoking.

Foreign tobacco companies in India have been looking for higher FDI levels in tobacco but have been met with domestic tobacco companies that have continuously lobbied against it. JTI is not alone in its quest for increased FDI. Previously, the Swiss ambassador to India wrote to the DIPP pressing for an increase in investment by a Swiss affiliate of US company, Philip Morris, through India’s Godfrey Philips.

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