By Research Desk
about 5 years ago


By Ruma Dubey

The statutory warning should be changed – cigarette making is injurious to a company’s financial health. Make cigarettes at your own risk!

Seriously. If the Govt is so morally upright and so concerned about people smoking cigarettes and wants to make it as out-of-reach as possible, we cannot help but wonder why it is being allowed to be made at all?

The latest has been the debacle on the proposed 40% GST on cigarette making companies. ITC tanked big time yesterday, so much so that it was probably one reason why the Sensex ended the day in the red. Today, it has recouped only because it had some saving news that it had acquired 87.06% equity share capital of Classic Infrastructure & Development for Rs 11.38 crore.  Really speaking, no great shakes in this news but just value buying in the stock after the badgering yesterday.

But the fact remains that GST implementation could hit its volumes and bottomlines. A Committee headed by Arvind Subramanian, Chief Economic advisor has recommended a 40% GST for tobacco and tobacco products, along with aerated beverages, paan masala and luxury cars.

The cigarette industry as such is reeling under huge tax burden. Since 2012, excise duty has gone up 98% and VAT has surged 124%. This has made cigarettes more expensive, leaving a telling effect on its volumes – down 15% since Q4FY15. If this 40% does get implemented, there is fear that volumes will get impacted further.

Sadly, it will not get people off the habit of smoking but will increase the sale of illegal cigarettes and bidis, which are even more detrimental to health. As such, these other tobacco products – bidi, chewing tobacoo, gutka, illegal cigarettes and kahini constitute 89% of total tobacco consumption in India.

What are wondering whether so much regulation for the industry is justified? The cigarette industry is indeed the very symbol of hypocrisy, as we stated earlier. If smoking cigarette is so injurious to health, with health warnings interrupting all TV/film viewing, with one having to see “Mukesh ki kahani” before every movie, after the national anthem, why can’t this harmful product be completely banned? That simply cannot be done as it’s a huge contributor to the national exchequer. India’s tobacco industry’s contribution to the country’s GDP is around 1.1% or roughly represents about 7% of the total for the manufacturing sector. Tobacco, being a labor intensive crop, provides employment to more than 60 lakh people who are engaged in the farming, curing, grading, primary marketing, processing, packaging, manufacturing, distribution, and retailing activities besides exporting. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco and it is the second largest sector in terms of central excise revenue contribution after the oil.

Thus there is no way that any sane Govt will ban manufacture of tobacco, knowing fully well that it is harmful. But at the same time, it creates an environment where survival for these companies, the mulch cows for the Govt to function with persistent excise duty hikes in every Budget, almost like a ritual. And then retrograde steps like warnings during films and now this ban of yesterday. Everyone who smokes, knows fully well that it is cancerous, just as they know the perils of driving too fast or drinking alcohol. But trying to discourage smokers while making money from these very companies, smacks of downright sanctimoniousness. Cigarette is like the war munging industry – it is bad for the world yet it is one of the biggest money makers.

The existence of cigarette companies is like the evils of our life – they will continue to exist otherwise we will not know the presence of good. Anything which is banned immediately becomes attractive; that’s how human psyche works. Thus cigarette companies will continue to make profits as many smoke their health away to cancer while the Govt plays devil’s advocate.

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