Universal Leaf comes calling

However Universal will not set up a manufacturing facility due to policy restrictions.

Universal Leaf Tobacco Company, the world's largest leaf tobacco merchant, is entering India by setting up a wholly owned subsidiary.

The $3.2-billion giant's Indian subsidiary will sell 25 per cent of processed tobacco in the country and export the balance to its Singapore arm.

However, Universal will not set up a manufacturing facility in India as the existing policy does not allow 100 per cent foreign direct investment (FDI) in tobacco production. Instead, the company will go in for contract manufacturing. This means it will act as an intermediary between farmers and the final product manufacturer.

Confirming the move, sources in the Foreign Investment Promotion Board (FIPB) said Universal had sought FIPB approval for setting up the subsidiary.

They added that Universal's application came under the rules that governed foreign direct investment in "cash and carry" activities. The existing policy permits 100 per cent FDI in "cash and carry" wholesale trading, subject to meeting standard conditions, including no retail trading.

The company had declared that it would not participate in any retail trading as well as agriculture plantation, the sources said.

Virginia-based Universal Leaf tobacco deals in tobacco grown in several parts of the globe and employs over 28,000 employees. It also has facilities in Europe, Africa, Latin America, and Asia.

Industry sources said the proposed move was expected to bring in a sea-change in the dynamics of the Rs 10,000-crore tobacco industry as all the established players now had their own production facilities.

They added that as the industry was not growing at a fast pace, Universal's proposed sale of one-fourth of the final production would impact the market equilibrium.

ITC dominates the domestic tobacco market with 75 per cent share while Godfrey Philips enjoys a 15 per cent share.