Govt Considers Restricting FDI In Tobacco Industry Soon: Report

Currently, FDI in the manufacturing of tobacco products is not allowed under existing government regulations

The central government may soon impose new restrictions on Foreign Direct Investment (FDI) in the tobacco sector, citing sources CNBC-Awaaz has reported. The Centre is reportedly considering expanding FDI curbs on cigarette manufacturing companies and may restrict foreign investment in technology tie-ups.

As per the report, if approved, the new regulations would extend FDI restrictions to any franchise of tobacco products, including trademarks and branding of tobacco and similar substitutes such as cigars. Currently, FDI in the manufacturing of tobacco products is not allowed under existing government regulations.

Following the news, shares of major tobacco companies such as ITC, Godfrey Phillips, VST Industries, NTC Industries, and Golden Tobacco dropped by 1-3 per cent.

The proposal is under deliberation by the Commerce Ministry and may soon be sent to the Cabinet for approval.

The impact of these potential regulatory changes on major industry players remains uncertain. The tobacco industry regularly faces regulatory pressures, including possible tax increases, particularly in the lead-up to Union Budgets.

Health concerns and anti-smoking campaigns are also contributing to a decline in cigarette consumption. Analysts have noted a slight decrease in cigarette volumes for VST Industries from 8,556 million units in FY19 to 8,253 million units in FY23.

Earlier, tobacco exporters have asked the government to extend the duty refund scheme RoDTEP to the sector to boost outbound shipments.

In a meeting with Commerce and Industry Minister Piyush Goyal in Hyderabad on June 29, traders submitted that tobacco exporters are not covered under any scheme that provides export incentives. They "requested to extend support to tobacco exporters by including them under the RoDTEP scheme," the ministry said in a statement.

They also requested the government help in curtailing the unauthorized production and use of chewing tobacco in India due to which there is a huge loss to the government exchequer, it added. They also informed that there is an increase in illicit cigarette sales.