India Considers Stricter FDI Norms in Tobacco Sector Amid Smuggling Concerns

The Commerce and Industry Ministry is proposing stricter foreign direct investment (FDI) norms for the tobacco sector to curb promotional activities and smuggling. Currently, FDI is banned in tobacco manufacturing but permitted in technology collaborations. The ministry seeks inter-ministerial feedback, with the domestic tobacco sector primarily dominated by ITC Ltd.

The Commerce and Industry Ministry is progressing on a proposal to impose more stringent regulations on foreign direct investment (FDI) in the tobacco sector, aiming to curb promotional activities and smuggling, an official disclosed.

Currently, FDI is prohibited in the manufacturing of tobacco products such as cigars, cheroots, cigarillos, and cigarettes. However, technology collaborations, including licensing for franchises, trademarks, brand names, and management contracts, are allowed in the tobacco sector.

The Department for Promotion of Industry and Internal Trade (DPIIT) has circulated a draft note for feedback from various ministries. The initiative follows a previously floated proposal in 2016, which suggested a total ban on FDI across all segments of the tobacco industry, hindered by concerns from tobacco farmers and some companies. The domestic sector is led by ITC Ltd., and India's FDI equity inflows saw a decline due to reduced contributions from key sectors.