The government is evaluating a proposal to ban foreign direct investment in licensing for franchises, trademarks, brand names, and management contracts in the tobacco sector, according to sources. The proposal is currently at a nascent and under-discussion stage only, as reported by Essential Business Intelligence. At present, foreign direct investment is prohibited in the manufacturing of cigars, cheroots, cigarillos and cigarettes of tobacco or its substitutes, but permitted in technology collaboration including licensing for franchise, trademark, brand name and management contracts in the tobacco sector. The proposal aims to address concerns that firms are trying to circumvent norms and tighten oversight of promotional activities. Any change in the tobacco FDI rules has wide-ranging impact on multiple players including tobacco manufacturers and farmers, with the government examining the impact on tobacco farmers and broader economy before taking a final call.
The move comes as tobacco farmers face severe distress with prices crashing from ₹360 per kg in 2025 to ₹265 per kg currently, according to PTI reports. Prices paid to farmers in Andhra Pradesh and Karnataka have fallen from around ₹400 per kg a year ago to about ₹250 per kg. India is the world's second-largest tobacco exporter, with Andhra Pradesh, Gujarat and Karnataka being the main growing states. The development assumes significance as tobacco growers face a severe procurement crisis, with the government considering the impact on farmers before finalizing any changes to FDI norms.
The proposal is not new, as the Commerce and Industry Ministry worked on a similar proposal in 2024 to further tighten foreign direct investment norms in the tobacco sector to check promotional activities and curb smuggling, according to Essential Business Intelligence. However, the government could not take any decision on the matter due to concerns raised in certain quarters, including tobacco farmers' associations. The FDI matters in the tobacco sector also assume importance as India is a signatory to the World Health Organization's Framework Convention on Tobacco Control, under which the country has the responsibility of reducing tobacco product consumption. The move aims to tighten FDI norms, check promotional activities, and curb smuggling, aligning with WHO guidelines.
According to estimates reported by Essential Business Intelligence, cigarettes account only for 10 per cent of tobacco consumption, and the health burden largely lies with oral and bidis. India still has 250 million users, the second largest after China, with more oral tobacco users than the rest of the world combined. According to PTI reports, cigarettes account for only about 10% of tobacco consumption in India, while oral tobacco makes up close to 80%, and bidis most of the rest. Domestic players produce both, and foreign capital has no presence in either segment.
Foreign direct investment in India rose 6 per cent to USD 19.81 billion in April-June this fiscal, as reported by Essential Business Intelligence. The government under the Tobacco Board Act of 1975 established the Tobacco Board in 1976 to regulate the tobacco sector and address supply-demand imbalances that lead to market problems.
