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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.

STEPHENS CITY — A pack of smokes will cost 25 cents more in town when a new tax adopted Tuesday takes effect.

The Town Council voted 6-1 at its regular meeting to approved an ordinance creating a 25-cent excise tax on a pack of 20 cigarettes. Mayor Ray Ewing, Vice Mayor Joy Shull and councilmen Ronald Bowers, John Hollis, Lindel Fravel Jr. and Micheal Grim voted to approve the ordinance on the final reading. Councilman John Harter gave the dissenting vote.

"There were enough people in this town that didn’t like the idea, and somebody had to vote against it," Harter said, explaining his vote.

Bowers disagreed.

"I think it’s a fair tax because you’re putting it on an elected product," Bowers said.

Currently, four businesses within town limits sell cigarettes and would have to charge the tax. Sellers must display a cigarette stamp provided by the town. Taxes will be collected by the town treasurer. The tax per individual cigarette will be 1.25 cents, but the total revenue should be around $25,000, according to Town Manager Mike Kehoe.

In other business, the council:

* Adopted a resolution to address "Virginia’s transportation funding crisis," by which the town supports the efforts of the governor and the General Assembly "to act swiftly and decisively to approve legislation that will address the transportation funding crisis at the statewide, regional and local levels."

The resolution also states that such legislation should include new tax and fee revenue, including tolls on new highways, to ensure safe roads, ease congestion, promote economic development and provide consumer choices.

* Held a public hearing on the proposed 2008-2009 budget. No one spoke during the hearing. The total budget is proposed at $1.45 million, compared to $1.66 million for the current fiscal year. The council scheduled a June 12 special meeting at which they plan to vote on the budget.

Also, the council approved a motion extending the deadline to pay real estate and personal property taxes to June 30. Bills were to be due Thursday.

* Voted unanimously to award a contract to American Disposal Inc. for refuse collection. The contract is for one year at $101,192. Evergreen Waste Inc. currently provides the service for nearly $90,000 but submitted a bid of $125,881 for the next year, the second-highest of three bids.

* Voted unanimously to adopt a resolution requesting that the Virginia Department of Transportation reduce the speed limit on U.S. 11 (Valley Pike), 0.95 miles south of the previous town limits, from 55 mph to 45 mph.