Given the fact that the merger of BAT and Rothmans has resulted in their joint holding in ITC going up to 33 per cent, Shah has suggested that this should be fixed as the maximum ceiling for foreign investment in the cigarette industry.

Shah has also said that the government adopt the same principle of limited foreign equity in the case of proposals such as R&D centres, part manufacture etc. As reported in The Indian Express on February 13, a subsidiary of Philip Morris, the world's largest cigarette manufacturer, had submitted a proposal to set up a wholly-owned unit under the guise of being an R&D unit. The proposal of FTR Holdings ofSwitzerland also said it would produce and sell cut tobacco which, in turn, would be made into cigarettes by other manufacturers. The proposal was deferred by the FIPB and referred to the core group of secretaries.

Interestingly, this leaves the industry ministry virtually waging a lone battle in favour of 100 per cent foreign equity in cigarette industry. Earlier last month, the finance ministry said that the Rothmans proposal for a fully-owned subsidiary was all right only if it came in as an export-oriented unit.

The issue of higher foreign equity in cigarettes also shot into prominence, following the allegations by the former advisor in the finance ministry, stating that the government was trying to push a proposal to sell 6 per cent of UTI's stake in ITC to BAT Plc, thereby giving it control over ITC. The CII president's letter clearly indicates that CII is lobbying against this.