Japan Tobacco, the world’s third-largest tobacco company, has decided to terminate its joint venture in India by the end of the year. The Japanese tobacco manufacturer has a 50% stake in the joint venture, JT International Indian Pvt Ltd. The venture has given up its licence to manufacture five billion cigarettes annually.
According to a report in the Business Standard, Japan Tobacco has shut its Hyderabad factory and sold most of the factory’s machinery. The report estimates that nearly 70 employees will lose their jobs, while several have already left the company.
The Business Standard quoted JT International spokesperson Proful Lall as saying that the decision to cease operations was based on “a significant accumulation of investment and an unsustainable business model in an operating environment where ready-made cigarette demand has not evolved, with several foreign investment, regulatory, duty and tax-related uncertainties”.
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Japan Tobacco has tried repeatedly to gain a controlling interest in the Indian company but has been unsuccessful. It had also planned to invest around US$5.3 million in the venture, but this was rejected by the Foreign Investment Promotion Board (FIPB). The investment proposal was submitted two years ago, when 100% foreign direct investment (FDI) in the industry was still permitted.
In June 2010, India’s Department of Industrial Policy and Promotion revised its foreign investment policy to impose a blanket ban on FDI in the manufacture of cigars and cigarettes. Prior to the announcement, 100% FDI in tobacco manufacturing was permitted with the approval of the FIPB. Manufacturers were also required to obtain an industrial licence under the Industries (Development & Regulation) Act, 1951.
The Indian government has said the restrictions are part of its efforts to reduce smoking in the country.
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