"The Department of Industrial Policy and Promotion is preparing a note for inter-ministerial consultations on the issue," a senior official said.
Commerce and Industry Minister Anand Sharma had said in Chennai last week that there was no justification for the government to allow FDI in the tobacco sector.
"Why should we have FDI in tobacco? There is a ban on smoking in public places. We are a responsible country," Sharma had said.
Health Ministry was also in favour of the move, sources said.At present, there is a no clarity on the FDI in the tobacco sector.
India, a signatory to the World Health Organisation- sponsored Framework Convention on Tobacco Control, is committed to bring down tobacco cultivation and consumption in the country.