The government has issued a ban on fresh flow of foreign direct investment (FDI) into the cigarette manufacturing sector. Contrary to expectations, the ban will be effective in special economic zones (SEZs) as well.

P. Chidambaram, Home Minister, said, “FDI will be prohibited in the manufacture of cigarettes, whether it is for domestic consumption or for exports.” The decision was taken after his meeting with the Cabinet Committee on Economic Affairs (CCEA).

The existing norms permit 100% FDI in cigarette manufacturing, provided other criteria such as industrial license and Foreign Investment Promotion Board approval are obtained. The idea to restrict FDI in the sector was first proposed by the Department of Industrial Policy and Promotion (DIPP) under the ministry of commerce and industry. However, in the first proposal, DIPP had advocated for a FDI ban excluding SEZs. The proposal was aimed at allowing FDI flow to continue in SEZs for export purposes.

This proposal was opposed by the ministry of health and family welfare, which forced DIPP to switch over to a complete ban. The revised proposal has the support of all major ministries such as ministry of commerce and industry, ministry of finance and the planning commission.

This change in policy may adversely impact the future expansion plans of foreign players in the field, though there will be no setback for their existing investments. India has three major players with large investments in the cigarette manufacturing sector – British American Tobacco (BAT), Altria Group and Japan Tobacco.

Both BAT and Japan Tobacco were planning to increase their stake in the Indian companies. This will not be possible with the new policy change.

However, the flipside is that the ban will help cash-rich Indian companies like ITC.

American private equity company Blackstone Group has announced that it will invest Rs. 225 crore in Jagran Prakashan (JPL) which is the publisher of popular Hindi newspaper Dainik Jagran.

Blackstone will be investing Jagran Media Network Private, which is holding JPL group’s media and communications. The network is going to file for formal approves with Foreign Investment Promotion Board. This news has come after a British newspaper Independent News & Media sold its 7.8% in Jagran Prakashan last month for Rs 260 crore in open market deals.

When asked about their alliance with Blackstone Group, the Managing Director and Chairman of JPL Mahendra Mohan Gupta said that the interest of Blackstone group in sharing their knowledge with management and understanding of media as an industry will bring more value to JPL and will benefit its shareholders.

He said, “Our endeavour shall be to make the best use of their expertise and relationships in driving our top—most agenda of organic as well as inorganic growth and making all the stake holders happier.”

The Dainik Jagran newspaper has37 editions and ove 200 sub—editions and it is published in 11 states in India.
Managing Director and Chairman of Blackstone Advisors India Private Ltd Chairman Akhil Gupta said in the coming years, print media in local Indian languages will see a significant growth which is expected to be triggered by increasing demand in the Tier II/III cities and villages.

He said,  “Our experience in the media sector in India and globally will enable us to be value—added partners to management and strengthen the company’s leadership position.”

Abut $16.5 billion have been pumped into the Indian economy by foreign investors. The foreign inflows are extremely important so that India can build up its forex reserves and the value of the rupee increases.

The government too takes this as a healthy sign. In fact, the finance minister has recently called in for a high powered meeting that will decide on changing some of the policies in order to change some of the existing rules and policies.

The foreign exchange that has so far flown in, has been on FDIs. However, it has been seen that a huge chunk may also enter the country through the stock market and other avenues. Foreign investors are interested in India’s growth story and India presents to them a charming market and an excellent investment option.

While governments all over the world are scampering over each other in order to cut down on the foreign exchange flowing in, Indian government has decided to open its doors wide. This may be a strategic move that allows more foreign investment in Indian companies and a keener interest in the India’s growth.

The New Industrial Policy, 1991, opened new vistas for globalisation and the resultant growth of the Indian economy. Soon, Foreign Direct Investments (FDIs) became the major drivers of the industrial growth and capital markets. According to the ‘India FDI Fact Sheet – July 2009’ by the Ministry of Commerce and Industry, the quantum of FDIs increased to USD 35.17 billion in 2008-09 from USD 4.03 billion in 2000-01.

 Mauritius (44%) remains the top investor in India, followed by Singapore (9%), US (8%), and UK (6%). Three most attractive sectors for FDI are financial & non-financial services (23%), computers (10%), and telecommunications (8%). The growth potential and revision of FDI norms for these sectors have led to an influx of investments by foreign entities.

 Analysing the geographical trends, wide disparity is revealed among the states. In the terms of FDI equity inflows, Maharashtra (35.56%) and Delhi-NCR (17.78%) lead the pack. IT, ITES, and financial services hubs Karnataka (6.49%), Gujarat (6.2%), Tamil Nadu (5.36%), and Andhra Pradesh (4.12%) fall much behind. States, like Bihar and UP indicate negligible FDI inflows. Therefore, a lot is left to be desired in the terms of a balanced regional growth in India and the State Governments need to come up with concrete measures for attracting foreign capital in their regions.