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NEW DELHI: Japan Tobacco International’s recent move to raise stake in its Indian subsidiary , JTI India, has lit up an old debate related to foreign direct investment in the tobacco or cigarette manufacturing business.

Should fresh FDI be permitted in companies that produce cigarettes? The current policy allows 100% FDI in the area, but subsequent governments have discouraged any new proposal on the ground that the policy cannot be implemented — it has been made void by a commitment made by former Union industries minister late Murasoli Maran in Parliament .

He had assured the House that FDI in tobacco products would not be permitted through issue of fresh licences as it concerned the health of the country’s citizens.

JTI, which owns powerful brands like Camel, Mild Seven, Gold Coast and Salem and launched the Winston brand of cigarettes last year, has proposed to increase its shareholding in its Indian JV from 50% to 74%. The company has said it is bringing in fresh money to restructure the JV with the Thakkar family. The JV company is currently in the red with accumulated losses of Rs 127.74 crore last fiscal.

Critics however, see this as a ploy by the foreign company to expand its business in India. A certain section of the society is of the opinion that if the foreign company is allowed to establish itself in the country, it will eventually promote smoking and also spread the ills that come with it, especially among the youth.

Smoking is injurious to the nation’s health, they argue. So far, so good. The problem however , takes a twist when a big Indian cigarettemaker also jumps into the fray, petitioning the government that the policy prohibits fresh FDI. And when influential members of Parliament also write to respective ministries, it is clear that bigger stakes are involved.

The policy allowing 100% FDI in cigarette manufacturing was announced in August 1998 when the late Sikander Bakht was the industries minister. Bakht’s argument was that since the policy was not on the automatic route, FDI would be permitted by the FIPB on a case-to-case basis.

Also, by way of another policy announced through Press Note 11 of 1998, it was stipulated that any new FDI case would require compulsory licensing under the Industrial (Development and Regulation ) Act of 1951. This implied that expansion of cigarette manufacturing capacities could easily be detected by the government and dealt with as per the merit of the proposal.

The policy to allow 100% FDI was hotly debated across the country as it was felt that it would open the doors to big foreign players to tap a potentially large market. It was soon put under test by a proposal of UK’s Rothmans of Pall Mall, which intended to set up a 100% Indian subsidiary. Around the same time, a plan by British American Tobacco to increase its stake in VST was also being fiercely debated.

When Maran became the industries minister, he chose not to clear any tobacco proposal and told the House that no fresh licenses would be issued. Clearly, if Rothmans had to come in, they required a fresh licence. The government kept the Rothmans’ case in abeyance untiland much to its comfort—it got merged with BAT worldwide and eventually withdrew the case the subsequent year. Since then, the government hasn’t received any FDI proposal, and so the fire remained doused.

With the policy in a limbo, local cigarette manufacturers got a fresh lease of life. While it meant the management of big companies like ITC could stave off any attempts by BAT to increase its hold on the company—BAT has a 33% stake in the Kolkata-based company—it also put a premium on licences.

But what if an existing license-holder wants to restructure his company by buying out a partner’s shares? In JTI’s case, for instance , the foreign company is only buying out shares of the Indian partner, which means that the existing JV will not see any fund infusion—the money goes to the Indian partner. The company has also made it clear that it has no plans to increase capacity.

It is learnt that the finance ministry is of the view that the proposal should be allowed because there is no fear of a capacity expansion in the current scheme. There’s no change in the promoters—only the Indian promoter’s stake gets diluted to 26%. The total equity capital of the company would remain the same. The health ministry is known to have serious issues with tobacco per se, and so it is likely to oppose the deal as well. The department of industrial policy and promotion supported the deal in the last meeting of the FIPB.

The fear however is that once the proposal is cleared, it may once again prompt foreign cigarette makers to try and up their ante in the Indian market by acquiring or attempting to acquire more shares in Indian companies. This could lead to increasing sales of locally-manufactured cigarettes and also of contraband cigarettes, especially of those brands which gain popularity in India.

But at the same time, the government while considering JTI’s proposal, should keep in mind that policy decisions should not be tweaked in the interest of any particular company or group of companies. It has to take a final call on whether the policy of 100% is valid or not.

If it is, it should then take a call on whether the current proposal would lead to propagation of smoking or is it only to better the health of a company the government once allowed to invest in India. If we are committed to the health of our citizens , a blanket ban on cigarette manufacturing is an ideal scenario.

Least we can do is to implement policies like ban on smoking in public places in their true spirit. If we can’t take the call owing to reasons that include the huge revenues cigarette manufacturing generates, we’d do well to be judicious.

BILLINGS - During the past few weeks, cigarettes have started two separate fires in Billings, but officials say that shouldn’t been happening.

Montana Legislators passed a law requiring all cigarettes sold in Montana to be fire safe. That means any cigarettes sold in the state shouldn’t smolder or start a fire after being used.

Billings Police Sergeant Kevin Iffland says enforcement of the new law lies with the state. "That’s where the enforcement comes in, it’s through the Department of Revenue and their agents. They have to make sure the businesses that have the license to sell cigarettes are selling the proper brands and fire safe labels," said Iffland.

The new law went into effect on May 1, 2008.

TOKYO, - Japan Tobacco Inc, the world’s No. 3 tobacco maker, said it may raise the price of Marlboro cigarettes– its first non-tax linked hike in 15 years — to help offset nine straight years of a shrinking market.
The increase would come on top of rises in everything from gasoline to beer and noodles that have already burdened consumers in the world’s second-largest economy.
Japan Tobacco, which is half-owned by the Japanese government, has seen costs rise even as it grapples with an ageing population and widening health consciousness that have reduced the ranks of smokers.
It is also suffering from the yen’s surge against the dollar and fallout from a food scare earlier this year involving pesticide-contaminated dumplings it imported from China.
"First we want to try to reduce our costs, then we want to shift customers to higher-priced, value-added products," spokeswoman Yukiko Seto said on Friday .
"After that, we might consider that sort of thing," she added, confirming a Nikkei business daily story quoting Japan Tobacco President Hiroshi Kimura as saying price hikes were an option.
If the company raises Marlboro cigarettes prices, it will be the first time since 1993 that a price increase has not been linked to taxes. Japan Tobacco makes Mild Seven cigarettes and owns the Camel, Winston and Salem brands outside of the United States.

In just over six weeks, cigarettes will become invisible in stores across Ontario and Quebec, but city vendors say the new law will only cost them money. On May 31, the final phase of the 2006 Smoke-Free Ontario Act will be to force vendors to dismantle so-called “powerwalls” — the prominent cigarettes displays generally positioned behind retail checkouts — but a representative for retailers predicted yesterday that it would be costly and difficult for stores to comply.
Though retailers have had two years’ notice, Chris Wilcox, chair of the Ontario Convenience Store Association, said details of the law were not distributed until last month, leaving stores scrambling. “It’s going to be a rush. Even for us,” said Wilcox, who is also general manager of 46 Quickie Convenience Stores in Ottawa. “You’re going to see a few places using curtains and bed sheets.”
Wilcox said larger chains such as Quickie will have the resources to make changes on time, but that it will be difficult for smaller businesses.
Walid Norat, the owner of O’Connor Smoke Shop, is concerned about the loss of revenue, but said his store will not lose as much business as others, because he tends to get specific clientele who know his wares, even if they’re not displayed.
“People who come in here tend to know what they’re looking for,” he said. Roland Comerford, who was celebrating his 60th year of operating Comerford’s Cigar Shop on Bank Street yesterday, will be forced to cover his pipe and cigar displays with frosted glass. “We’re going to have a catalogue for people to browse, but they have to ask for it and we have to put it back under the counter when they’re done,” he said.
Comerford expects to see a drop in sales, because of the “out of sight, out of mind” effect. Comerford’s store generates more than 50 per cent of revenue from cigarettes and tobacco.
Wilcox doubts that concealing cigarettes in stores will help reduce youth smoking rates, noting powerwall bans in Saskatchewan and Manitoba have not had any effect. According to Health Canada, in 2004, 22 per cent of people over 15 years old smoked. Last year that was around 25 per cent.