How India Became Philip Morris’ Ashtray: Yesterday the Pnut wrote on devastating air pollution in Dakar, Senegal, where a third of the population has some kind of lung ailment, and children are increasingly becoming asthmatic. But at least Dakar isn’t New Delhi, India, the capital city with the world’s most polluted air, in the country with the planet’s most polluted air. India has 106 million smokers, second only to China; it is an attractive market for tobacco companies. In 2010, with a goal to curb smoking, India’s government banned foreign direct investment (FDI) in cigarette manufacturing, although it still allowed tobacco companies to invest through technology collaboration and licensing agreements. Investments could also be made by forming a trading company. Cigarette manufacturing was supposed to be left largely to domestic players, without the aid of foreign funded expansion. A year after the government’s decision, Japan Tobacco exited India, citing an “unsustainable business model.”
Philip Morris, a huge international tobacco company, remained in India, and found a way around the ban through the built-in loophole in the regulations. In 2009, a year prior to the FDI ban becoming law, Philip Morris struck an exclusive deal with India’s Godfrey Phillips to locally manufacture the world-famous Marlboro cigarettes. First, a new wholesale trading company, headquartered in New Delhi, was formed with Godfrey. Thereafter Godfrey sent invoices to its partner for machinery and equipment to manufacture the cigarettes. A review of internal company documents showed that between 2009 and 2018 Philip Morris International paid its Indian partner hundreds of thousands of dollars in costs associated with manufacturing its Marlboro cigarettes.
A former official of India’s main financial crime-fighting agency said that paying for machines to manufacture cigarettes essentially resulted in the promotion of cigarettes, which the ban was meant to deter. The cigarette companies would face staggering financial penalties if found guilty. But a spokesperson who advises global companies on foreign investment rules said because the Indian regulations only restricted direct foreign investments into a company, and were silent on such indirect payments for machines, “The company can argue in its defense that it is only funding the equipment purchases and not investing directly in an Indian cigarette manufacturing company, and they would be technically correct.”
Additional read: FDA chief Gottlieb resigns as agency battles teen vaping, opioid crisis (CNBC)