Union Commerce Minister Piyush Goyal has reiterated the central government's stance against liberalizing Foreign Direct Investment (FDI) in the tobacco sector, signaling instead a move towards tightening existing norms.
Speaking at an industry event in New Delhi, Minister Goyal indicated that the government is considering restrictions on FDI related to franchises of tobacco products, trademarks, and branding of tobacco and similar substitutes.
Currently, FDI in the manufacturing of tobacco products in India is prohibited under government regulations. The proposal to further tighten FDI norms in this sector is currently under deliberation within the Commerce Ministry and is expected to be presented to the Cabinet once finalized.
The tobacco industry, categorized as a sin industry, frequently encounters regulatory challenges, including substantial tax implications. Tobacco products are subject to the highest tax slab of 28 per cent under the Goods and Services Tax (GST), with additional sin taxes ranging from 61 per cent to over 200 per cent applied to various products.
In 2020, a parliamentary panel of the Ministry of Commerce and Industry had recommended exploring avenues for regulated FDI in the tobacco sector to potentially bolster exports of tobacco products. The panel also proposed promoting exports-only tobacco farms to enhance India's global tobacco exports.
India currently maintains a significant position as a net exporter of cigarettes, exporting over USD 100 million worth of cigarettes in 2022 while importing nearly USD 26 million. According to the India Brand Equity Foundation (IBEF), the tobacco industry in India supports approximately 36 million jobs across farming, processing, manufacturing, and export activities.
As India prepares for the Union Budget scheduled for July 23 this year, the tobacco industry remains vigilant about potential regulatory developments, particularly concerning tax policies and other governmental measures affecting its operations and market dynamics.
