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Corporate May 2, 2012

A kick in the butt: Is the end near for Benson, Marlboro in India?

By Arlene Chang

How many times have you walked an extra 10 minutes to buy that original pack of Benson and Hedges or passed by a couple of paan tapris (stalls) because they did not stock your favourite brand of Marlboro Lights?

Better still, how many times have you not smoked because you couldn't find your brand of imported cigarettes?

If you are one of those brand loyal, furiously-puffing cigarette consumers, your body is going to cheer this piece of news even as your mind is going to loathe it -- because the search for your brand of Benson & Hedges or Marlboro may just get tougher.

Two years after India banned foreign direct investment in cigarette manufacturing, the government is now mulling a new curb on the import of cigarettes, according to a report in the Economic Times. What's more, there may also be a ban on the participation of foreign players in the wholesale trade of cigarettes and tobacco, compounding the woes of our puffing population.

While FDI in manufacturing cigarettes was banned in 2010, foreign investors were allowed to operate in the wholesale trade of tobacco and cigarettes. But, if the government does decide to impose the new curb, it may become increasingly difficult to get imported brands of cigarettes in India.

Two years after India banned foreign direct investment in cigarette manufacturing, the government is now mulling a new curb on the import of cigarettes. Reuters

The newspaper quoted a government source as saying, "There is a thinking that FDI should be discontinued in wholesale cash and carry also, and that the government should impose restrictions on imports of cigarettes."

While smokers may lose out if this proposal does come to pass, the two major beneficiaries will be domestic cigarette manufacturers like ITC -- which has a stranglehold on the country's cigarette market -- and black marketeers.

ITC could further boost its leadership position in the cigarette business. According to ITC's financial results for the quarter ended December 2011, its unaudited segment-wise gross revenues for nine months for the cigarette business came in at Rs 16,566 crore, while net revenues for the same period totalled Rs 9,074 crore. Those figures were 13 percent and 16 percent higher from a year ago, respectively.

Moreover, ITC estimates thatthe burgeoning illegal trade in cigarettes costs the exchequer more than Rs 3,000 crore per annum in lost revenues. It cites a recent independent international market study, pegging illegal trade of cigarettes in India at more than 16 percent of the total industry size, making the country the sixth-largest globally in illicit cigarette trade.

On the other hand, the losers of the proposal to ban wholesale trading by foreign investors, will be local Indian companies like Godfrey Phillips, whichrely on imports for wholesale cash and carry operations; these companies may need to restructure their businesses.

"The government is introducing a series of policies that are not investor friendly. This is one of them," KK Modi, chairman of Godfrey Phillips India, told the Economic Times. Godfrey Phillips is in a joint venture with Philip Morris of the US for the wholesale trading of cigarettes like Marlboro.

So while cigarette companies andsmokers may not be rejoicing at the government's direction, passive smokers must be smugly pleased that, finally, it's not their lives that are going to be blown up in smoke. Paan tapris, cigarette companies and smokers, be damned!

by Arlene Chang

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