The tobacco business is on the upward curve in India, owing to the country's growing population and economic development. From an estimated worth of Rs 90,000 crore in 2009, the business is expected to reach Rs 230,000 crore by 2018. No doubt the tobacco industry bosses feel like the cigarette-smoking Dev Anand in Hum Dono who sang “barbadhion ka jashn manata chala gaya, har fikr ko dhuey mey udhatha chala gaya (I celebrated every act of misfortune and blew away my worries in smoke)”.
While bidis account for almost 85% of tobacco use, they aren’t the mainstay of the business in value. Cigarettes account for 44% of the market value of the business, and the rest is made up of chewing tobacco, bidis and other forms. Tobacco leaf production has increased from 337 million kilos in 1970 to 750 million kilos in 2015. The only good news in all this is that the per capita cigarette consumption has declined from 190 in 1970 to 99 now. The tobacco industry attributes this drop to higher excise duties on cigarettes in each of the last few budgets – which means the policy is working well.
If the government wants to slow down the tobacco market, it should strengthen regulation, curb smuggling of counterfeit brands of cigarettes, and raise taxation further in this year’s budget.
Impressive figures
Despite the drop in stick sales, rupee sales and profits have not declined. The figures are still impressive. The number of cigarettes smoked in 2000 was 71,474 million, when India had a purchasing power parity per capita income of just $1,354. It is closer to $6,200 now, which suggests that the number of cigarettes puffed would have gone up. Understandably, the cigarette industry shies away from revealing the figures. But we have data from the Food and Agriculture Organization. The agency estimates that in 2000 the total tobacco consumption was about 4,703,000 tonnes. It was projected to rise to 5,638,000 tonnes in 2010.
The FAO also forecasted that in 2010 the share of tobacco consumption in developing countries would come down from 34% to 29% and the poor countries would account for 71%. It must be noted that all cigarette manufacturing in India is with multinational corporation-dominated companies and it is the conscious policy of these MNCs to shift their markets to least developed countries.
The tobacco business employs some 8 million people in India, accounting for 1.5% of overall employment. More than two-thirds of this employment is rural, and many of the jobs, particularly in bidi manufacturing, are primarily part-time. Exports of Indian tobacco and tobacco products rose at a compound annual growth rate of 9.0% to $918.9 million in 2014-’15 from $502.2 million in 2007-’08. India exported 246 million kilos of tobacco and tobacco products in 2014-’15.
The tobacco industry will, no doubt, argue now that it is not wise to kill the goose that lays the golden egg. However, it is not a golden egg but a time bomb. Each cigarette or bidi smoked or gutka chewed now implies a future medical cost.
Health costs
It is estimated that about 900,000 people died in 2010 due to their tobacco habit. In the same year, medical cases due to tobacco-related ailments exceeded 8 million, of which 7.85 million pertained to coronary artery and chronic obstructive lung diseases, which require expensive medical intervention. It need not be emphasised that these diseases entail higher medical costs and man days lost than cancer. The estimated annual loss due to tobacco-related illnesses is now over Rs 105,000 crore.
As for tobacco-related taxation, it fetched the government revenues amounting to about Rs 18,000 crore in 2011. Of this Rs 9,000 crore was from cigarettes. The cost to the nation is not entirely due to cigarettes and this implies that there is a case for much higher taxation on other tobacco products. A group of experts commissioned by the Bill and Melinda Gates Foundation said:
“Raising bidi taxes to Rs 98 per 1000 sticks would add Rs 36.9 billion to tax revenues and prevent 15.5 million current and future smokers dying prematurely; increasing cigarette taxes to Rs 3691 per 1000 sticks would further add Rs 146.3 billion to tax revenues and prevent 3.4 million premature deaths.”
Another point of concern is that, as several US Congressional investigations reveal, cigarette companies routinely spike tobacco with extra nicotine to intensify addiction. The critically acclaimed Hollywood movie The Insider was based on real events that led to the unravelling of the cigarette industry’s habit-inducing practices. It is alleged that similar practices may be common in India. There is, therefore, a case for pegging excise duties with nicotine content, which implies that the packs then state details of the product's exact contents. There are a few ways of doing this, apart from central excise. States could levy a production tax and the land revenue authorities could reinstate taxation on tobacco agriculture.
Aiding the industry
At present, the government seems to be encouraging tobacco agriculture. True, bidi manufacturing is a labour intensive business, but the benefits are far outweighed by health costs, most of which are borne by the state. In most developed countries, taxes account for 50-70% of tobacco product sales prices. In India it is still around 10%. The World Bank in a series of studies has clearly shown that a 10% increase in tobacco product prices will result in an 8% reduction in consumption.
Contrary to the weight of good sense and economic logic, the government is active in the promotion of the tobacco industry. It even has a Tobacco Board to promote the industry. The other great irony is that tobacco cultivation is water and fertiliser intensive, and India uses about 1% of its irrigated area for tobacco cultivation. This means that the benefit of water, power and fertiliser subsidies also accrue to the tobacco industry. The only way to neutralise this would be to tax tobacco agriculture with both land revenues and income tax. This will be unpopular with politicians from the tobacco growing areas, but it is time we bit the bullet.
We need a policy that will not only address the issue of future health costs and reduce the incidence of smoking, but also curb smuggling. One immediate step the government needs to take is to disallow the manufacture of international brands here. Sale of foreign brands must be banned altogether and ways to deter their stocking must be evolved. Japan has such a regulation in place. China, which goes out of its way to attract foreign direct investment and with much success, does not allow any foreign investment in cigarettes.