New Delhi: 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, sources said.

The proposal is at a nascent and under-discussion stage only, they said.

At present, foreign direct investment (FDI) is prohibited in the manufacturing of cigars, cheroots, cigarillos and cigarettes of tobacco or its substitutes.

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However, it is permitted in technology collaboration in any form, including licensing for franchise, trademark, brand name and management contracts in the tobacco sector.

The proposal is not new. In 2024, the Commerce and Industry Ministry worked on a proposal to further tighten foreign direct investment norms in the tobacco sector to check promotional activities and curb smuggling in the segment as firms are trying to circumvent norms.

However, the government could not take any decision on the matter due to concerns raised in certain quarters, including tobacco farmers' associations.

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The FDI matters in the tobacco sector also assumed importance as India is a signatory to the World Health Organization's (WHO) Framework Convention on Tobacco Control, under which the country has the responsibility of reducing consumption of tobacco products.

As per estimates, 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.

Recognising the need to regulate production, promote overseas marketing and control recurring instances of imbalances in supply and demand, which lead to market problems, the government under the Tobacco Board Act of 1975 established the Tobacco Board in 1976.

Foreign direct investment in India rose 6 per cent to USD 19.81 billion in April-June this fiscal.