Tobacco and Cigarette Industry in India: A Review

TobaccoTobacco

Tobacco is a product prepared from the leaves of the tobacco plant and contains the alkaloid nicotine, a stimulant. Dried tobacco leaves are mainly smoked in cigarettes, cigars, pipe tobacco and also consumed as snuff and chewing tobacco.

Smoking was a common thing among Native Americans who believed that tobacco was a gift from the Creator, and that the exhaled tobacco smoke carries one’s thoughts and prayers to the Creator.

India has > 95,000 registered tobacco farmers and many more who are not registered. Around 0.25% of India’s cultivated land is used for tobacco production.

Tobacco Industry in India

  • Tobacco was introduced by the Portugese in the 17th century
  • The industry provides direct and indirect employment to 3.8 crs Indians
  • It contributes Rs 28,000 cr to the Government
  • It generates Rs 6,000 cr of foreign exchange earnings
  • Total tobacco consumption increased from 406m kgs in 1981 to 577m kgs in 2014
  • Rising trend and growth in export the last seven years of 16% from US$ 323m 2006 to US$ 900m in 2013
  • India is the second-largest exporter of FCV tobacco in the world
  • Indian tobacco is exported to around 100 countries

World annual production of about 725 million kgs. Of this, Flue Cured Virginia (FCV) tobacco – the main exportable variety of tobacco that is produced in the states of Andhra Pradesh and Karnataka – account for 300 million kgs.

Threat to the Tobacco Industry in India

One of the biggest threats to the Tobacco industry is domestic illegal cigarettes using tobacco of inferior quality. They impact:

  • demand for good quality tobacco
  • incomes of Indian farmers
  • long-term viability of legal cigarette industry
  • government revenues

Cigarette Industry

  • India accounts for over 17% of world population, but
    – 2% of global cigarette consumption, and
    – 84% of global smokeless tobacco consumption
  • Consumption of legal cigarettes has decreased from 86m kgs in 1981 to 68m kgs in 2014 i.e., from 21% to 12% of total tobacco consumed
  • In terms of per-capita consumption India is one of the lowest:
    – Russia : 2786
    – Japan : 1841
    – China : 1711
    – USA : 1028
    – Pakistan : 468
    – Nepal : 420
    – India : 96

Illegal Cigarettes

  • Domestic cigarettes are very highly taxed – this has lead to increased use of cheaper tax-evaded cigarettes which leads to an exchequer loss of Rs 6,000 crores
  • The proceeds of illegal cigarettes are used to fund unlawful and anti-Indian terrorist activities

Illegal cigarettes are a threat to national security and the Indian way of life and must be dealt with in the strongest way.

Source

  1. ITC Limited | Report and Accounts 2014
  2. IBEF

Subhodeep Mukhopadhyay

I am a Management Consultant in the Education Sector. In my previous corporate career, I have worked in Banking, Private Equity and Software industry. I am an MBA in Finance/ Computer Engineer and enjoy doing equity research and financial analysis in my free time.

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