NEW DELHI - Philip Morris International Inc has for years paid manufacturing costs to its Indian partner to make its Marlboro cigarettes, circumventing a nine-year-old government ban on foreign direct investment in the industry, internal company documents reviewed by Reuters showed.
Philip Morris, though, stayed in India and used another route, according to company documents dated between May 2009 and January 2018. A year before the FDI ban, it struck an exclusive deal with India’s Godfrey Phillips to locally manufacture the world-famous Marlboro cigarettes. Philip Morris’ director for corporate affairs in India, R. Venkatesh, in an e-mail, said the company’s “business arrangements with Godfrey Phillips India comply with Indian Foreign Direct Investment Rules”. He did not elaborate.
Philip Morris’ local unit and Godfrey arranged a mechanism for such transfer of funds around the time they struck the 2009 deal. A 94-page “procurement agreement” signed between the two sides that year, which is not public but has been reviewed by Reuters, said that Godfrey may acquire new machinery for solely manufacturing Marlboro cigarettes and will then “invoice PM India” for charges in a phased manner. Philip Morris “shall pay such invoice by bank transfer”, the agreement said.
Bhure Lal, a former head of India’s Enforcement Directorate, said the companies “should be investigated ... they are camouflaging”. “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,” Jain told Reuters.The Indian journey of Philip Morris, which is one of the world’s largest international tobacco companies, began in the late 1960s when it acquired a majority stake in the London-based parent of Godfrey Phillips.
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