PMO weighs farmers’ interests as govt considers complete FDI ban in tobacco

A high-level meeting chaired by the principal secretary to Prime Minister discussed a proposal to completely prohibit foreign investment in the tobacco sector. However, PMO has sought an assessment of the potential implications for tobacco farmers before the government takes a final decision.

The Prime Minister’s Office (PMO) has asked top officials to assess the impact of a complete ban on foreign direct investment (FDI) in tobacco, two government officials said.

At a meeting late last month, the principal secretary to Prime Minister Narendra Modi asked the department for promotion of industry and internal trade (DPIIT) to examine the implications of this proposal on tobacco farmers, particularly in the country’s major tobacco-producing states, before a final decision is taken. The meeting was attended by DPIIT secretary Amardeep Singh Bhatia, Union health secretary Punya Salila Srivastava and representatives of the revenue department.

FDI is already prohibited in the manufacturing of cigarettes, cigars, cheroots and cigarillos made from tobacco or tobacco substitutes. However, India permits technology collaboration, including licensing for franchise, trademark, brand name and management contracts in the sector.

Queries sent by Mint on 27 October to DPIIT, ministry of commerce and industry and PMO, remained unanswered.

The development introduces a political dimension as Andhra Pradesh and Karnataka are major tobacco-producing states, and any policy affecting farmers’ incomes, tobacco procurement or the wider value chain could impact the ruling political party’s relationships with its allies.

India is the second largest exporter of tobacco in the world with Andhra Pradesh, Gujarat and Karnataka being the main producing states. The PMO’s concerns around farmers can be seen in the light of the falling procurement prices of tobacco this year that led to some of the major tobacco producing states appealing to the Centre for support to the growers.

The current proposal, similar to the one floated in 2024 by the commerce ministry, bats for a complete ban on FDI in the tobacco sector.

India is a signatory to the WHO (World Health Organisation) Framework Convention on Tobacco Control which requires the country to reduce consumption of tobacco, and the subsequent proposals from commerce and industry ministry are a reflection of that commitment. However, India still has 250 million users, the second largest after China and per estimates, cigarettes account only for 10% of the consumption, and the health burden largely lies with oral tobacco and bidis.

This has led many quarters to argue that a ban on foreign investment in manufacturing of cigarettes, cigars, cheroots and cigarillos has achieved little in reducing India’s public health concerns around tobacco consumption.

These arguments coupled with concerns from tobacco farmers’ associations led to the government keeping the 2024 proposal on the backburner.