End of the road for Camel Marlboro, Benson & Hedges?

The government is mulling curbs on import of cigarettes and a complete ban on foreign participation in wholesale trading in tobacco and cigarettes. The move comes two years after India disallowed foreign direct investment in cigarette manufacturing. The finance ministry has written to the commerce ministry to consider imposing restrictions on cigarette imports in the upcoming foreign trade policy.

 "There is a thinking that FDI should be discontinued in wholesale cash and carry also, and that the government should impose restrictions on imports of cigarettes," a government official privy to the development said. FDI in cigarette manufacturing was banned in 2010, but wholesale cash and carry operations were left open for the investment route. Following the ban, some tobacco companies with FDI set up wholesale cash and carry operations to cater to domestic demand. The proposal to curb imports will benefit domestic cigarette manufacturer ITC, which has a stranglehold on the country's cigarette market. On the other hand, companies that rely on imports for wholesale cash and carry operations, such as Godfrey Phillips, may need to restructure their businesses.

 "The government is introducing a series of policies that are not investor friendly. This is one of them," said KK Modi, chairman of Godfrey Phillips India, which has a joint venture with US tobacco company Philip Morris for wholesale trading of cigarettes including Marlboro. Experts say a complete ban may not be in the offing owing to India's commitments under World Trade Organisation rules. Cigarettes can be imported under the open general licence (OGL) route, the most liberalised form of import licence that does not place any export obligation on the importer. Other forms of licences place restrictions in terms of quantity or exports.

 Ministries including the health, finance and commerce and industry are involved in consultations on the issue in the backdrop of the new foreign trade policy. The Director-General of Foreign Trade had initiated discussions on removing cigarettes from under OGL after the Consortium of Indian farmers Associations demanded a ban on cigarette imports. "Smokers, and those wanting to start smoking, will continue to access cigarettes from different sources," Modi added. The move to ban fresh foreign investment in cigarette manufacturing had come up soon after Japan Tobacco announced its intention to raise stake its Indian arm to 74% from 50%. In the past, British American Tobacco has attempted to raise stake in ITC but failed. BAT is the single-largest shareholder in ITC with about 32% stake.