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4 TOBACCO IN INDIA


4.1 INTRODUCTION

The study reviews the status of the tobacco sector in India, both raw tobacco and its manufactured products. An attempt has been made to identify major economic and social factors affecting tobacco production and consumption, and to explore the economic implications of government policy measures for tobacco control.

4.2 AREA, PRODUCTION AND YIELD

The area under tobacco, some 0.25 percent of the total cropped area, has fluctuated irregularly over the past three decades. The area under tobacco appears to be strongly influenced by prices in the preceding year. As a result of increasing yields, production of tobacco rose from 362 000 tonnes in 1970/71 to 646 000 tonnes in 1997/98 (Table 4.1).

Table 4.1: Area, production and yield of tobacco in India

Period

Area (‘000 ha)

Production
(‘000 tonne)

Unit yield
(kg/ha)

Proportion with
irrigation (%)

1970/71

447

362

810

23.7

1975/76

368

350

950

29.8

1980/81

452

481

1 065

33.7

1985/86

397

441

1 111

39.9

1990/91

385

563

1 353

43.2

1994/95

381

567

1 486

45.3

1995/96

395

535

1 356

n.a.(1)

1996/97

432

599

1 386

N.A.

1997/98

464

646

1 393

N.A.

Notes: (1) n.a. = not available.
Source: Directorate of Economics and Statistics, Ministry of Agriculture. Various issues. Area and Production of Principal Crops in India.

During the last three decades, production of Flue Cured Virginia (FCV) tobacco increased at an annual rate of l.2 percent despite its area declining by 0.7 percent annually. Production of other varieties increased by over 2 percent, reflecting mainly higher productivity as the area sown registered only a marginal increase. An analysis of long-term performance indicates marked changes in trends between the 1980s and the 1990s. Total FCV production between 1981/82 and 1991/92 showed a small annual rate of growth (0.9 percent). The decline in area offset part of the gains from productivity. Of the increased output, almost 85 percent was due to increased productivity and 15 percent to expansion of area. The increasing yield of VFC tobacco during the 1990s reflected the boost from government policy, through the Tobacco Board, for this variety. The improved technology and the cultural practices recommended by the Central Tobacco Research Institute (CTRI) and other institutions also helped to boost production.

The widespread adoption of improved varieties released by CTRI and other research stations, combined with the adoption of improved cultural practices, have improved unit yields. Substantial increases in the use of fertilizers and insecticides for tobacco have also played an important role. Data on total quantities of these inputs used on the tobacco crop are not available for the country as whole, but research indicates that tobacco farmers in India use dosages of these inputs that are substantially higher than those recommended by research stations (cf. NCAER, 1994). However, in Andhra Pradesh, according to estimates (DES, 2000), fertilizer application per hectare on tobacco increased almost 250 percent in the five years from 1990/9l to 1994/95, while the use of insecticides doubled. Similarly, increased use of irrigation, which gives higher yields compared with rainfed production, has also made an important contribution. All of these inputs are supplied at subsidized prices. Finally, price increases also seem to have stimulated higher output. Farm harvest prices for tobacco have increased three- to ten-fold in the last three decades, depending on region. Moreover, the increase in wholesale prices for tobacco has been higher than for cereals or other alternative crops, such as cotton, pulses, chili or groundnut.

A wide variety of tobaccos are grown in 16 states in India under diverse agroclimatic conditions. However, most of the varieties grown (other than Virginia, Burley and Oriental) are of non-cigarette types. These include natu, bidi, chewing, hooka (hookah), cigar and cheroot tobaccos and account for about 77 percent of the total output (Table 4.2). Cultivation of FCV tobacco was initially confined to the traditional black soil areas of Andhra Pradesh. However, to suit the quality requirements in internal and export markets, cultivation of FCV was encouraged in light soils in Karnataka and Andhra Pradesh. In the initial years, the varieties grown were limited to Havana tobacco used in cigars, and Lanka tobacco used in the manufacture of snuff and bidis. Subsequently, other forms, like FCV, were introduced.

Table 4.2: Distribution (percentage) of production of different types of tobacco in India.

Year

Percentage distribution of production of different tobacco types

Total harvest
(‘000 tonne)

FCV

Natu

Bidi

Cigar

Hookah

Cheroot

Snuff

1975/76

27.7

10.9

31.4

4.3

7.1

17.2

1.4

349.8

1980/81

26.1

10.6

36.5

2.8

7.7

14.8

1.5

520.1

1985/86

18.0

13.8

39.3

4.0

6.8

17.0

1.8

441.2

1986/87

23.7

9.5

40.0

2.4

6.1

16.9

1.4

461.8

1987/88

15.4

9.8

37.6

2.7

8.7

24.1

1.7

367.4

1988/89

21.2

12.2

33.9

2.9

9.4

18.8

2.1

492.8

1989/90

18.8

12.9

33.4

2.8

6.2

23.5

2.4

551.6

1990/91

20.3

10.5

35.5

2.6

14.1

14.9

2.1

558.4

1991/92

28.2

12.3

28.6

2.4

12.4

13.5

2.6

584.4

1992/93

27.8

10.4

31.6

2.8

13.3

11.9

2.2

596.5

1993/94

22.0

10.7

33.4

2.8

17.3

11.7

2.1

562.9

1994/95

20.0

7.9

38.6

3.1

3.9

24.4

2.1

566.7

1995/96

22.0

9.0

38.3

3.2

3.2

22.2

2.1

535.2

1996/97

23.4

8.1

34.2

2.1

5.8

25.8

1.6

617.9

1997/98

23.6

8.1

29.5

1.5

6.6

29.1

1.5

646.0

Source: Directorate of Tobacco Development, Ministry of Agriculture, Chennei.

4.3 IMPACT OF GOVERNMENT POLICIES ON PRODUCTION OF TOBACCO

Even though tobacco comes under state jurisdiction, the Government of India plays an important role in the growth and development of the tobacco industry. In fact, at least six ministries of the Union Government - Agriculture, Commerce, Finance, Industry, Labour, and Rural Development - deal with one or another specified aspects of the industry. Following the increasing health concern about tobacco consumption, the central Ministry of Agriculture has not launched any development scheme for the crop since the completion of the Seventh Five-Year Plan (1985-90). However, in general, government policy has been to promote production, improve quality and ensure remunerative prices for growers.

Government interventions in support of the industry can broadly be classified into:

(i) institutional and regulatory support;
(ii) price and market support;
(iii) export promotion;
(iv) research and development (R&D); and
(v) direct fertilizer and credit subsidies.

All these interventions involve explicit or implicit subsidies for the tobacco industry.

The introduction of the auction system by the Tobacco Board brought an element of competition to the tobacco leaf market and freed the market from pricing and grading anomalies. Farmers intending to grow Virginia tobacco are required to register with the Board every year. Production quotas are fixed. Nevertheless, the Tobacco Board, which has responsibility for regulating production, marketing and exports of FCV tobacco grown in the states of Andhra Pradesh, Karnataka and Mahaarshtra, has not been completely successful in controlling the area under tobacco (Table 4.3). In fact, controlling the area to be planted is an ineffective instrument for controlling production since price incentives, climatic conditions and the expertise of individual growers can greatly change the yield per hectare on individual farms from season to season. The Board’s attempts to reduce fluctuations in auction prices have met with mixed success. Moreover, cultivation and trade of non-FCV varieties, constituting over 75 percent of tobacco production, is still outside the purview of the Tobacco Board.

Table 4.3: Area registered and planted to FCV tobacco cultivars, and production

Year

Area (‘000 ha)

Production (‘000 tonne)

% change in price

Recorded

Planted

Difference
[(3) - (2)]

Expected

Actual

Difference
[(6) - (5)]

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

1986/87

111.20

104.871

-6.33

110.20

132.73

3.07

21.37

1987/88

83.20

68.31

-14.89

83.20

59.34

-23.77

-34.18

1988/89

92.08

105.52

13.44

100.00

116.21

16.21

98.66

1989/90

88.58

105.32

16.74

93.00

100.82

7.82

1.59

1990/91

103.52

122.40

18.88

105.00

109.48

4.48

-11.45

1991/92

122.26

153.55

31.29

144.83

159.19

14.36

-13.37

1992/93

113.56

140.71

27.15

124.06

158.86

34.80

-18.37

1993/94

86.11

122.84

36.73

92.64

125.50

32.86

1.68

1994/95

81.69

106.39

24.70

86.27

96.34

10.07

10.00

1995/96

94.28

124.14

29.86

99.67

114.40

14.73

26.32

1996/97

100.54

152.72

52.18

112.76

168.21

55.45

24.38

1997/98

105.38

154.03

48.65

141.81

177.09

35.28

37.61

1998/99

118.23

183.47

65.24

139.26

204.49

65.23

n.a.

1999/20

120.73

178.93

58.20

132.28

190.00

57.72

n.a.

Source: Tobacco Board (various issues). Annual Administrative Report.

The Directorate of Tobacco Development handles marketing of non-FCV tobacco. The Central Ministry of Agriculture continues its efforts to streamline the marketing of non-FCV tobacco in consultation with the State Departments of Agriculture. They provide limited facilities, such as market yards, and their impact on prices, etc., is restricted. In this sector, traders and manufacturers are more active and they take advantage of weak bargaining positions, especially in cases where they provide loans and or inputs on credit to farmers for raising the tobacco crop.

The Tobacco Board, established in 1976, provides marketing services for FCV tobacco, through its compulsory auction system. Virginia tobacco at the primary level is sold through auctions conducted by the Board. Exporters of tobacco, manufacturers of cigarettes and dealers in tobacco wishing to participate in the auctions have to register as a buyer for each auction floor, wherever they intend to operate. However, the auction system has not been successful in reducing fluctuations in the levels of auction and export prices. Table 4.4 compares price levels for selected representative grades at both the production and export levels. These grades include F2 at the farm level and its equivalent export grade, namely L2.

Table 4.4: Structure of tobacco prices (Rs/kg)

Year

MSP

MGP

Auction Price
(F2 Grade)

MEP
(L2 Grade)

Actual unit export value

1984/85

11.15

Nil

11.98

23.25

23.99

1985/86

11.15

Nil

13.01

23.25

24.92

1986/87

11.15

Nil

8.26

23.25

25.45

1987/88

11.25

Nil

19.9

24.55

25.35

1988/89

11.75

18.00

18.52

27.00

28.13

1989/90

12.50

15.10

34.49

27.00

31.47

1990/91

13.25

15.90

29.88

32.10

33.76

1991/92

14.75

21.50

29.88

48.50

58.45

1992/93

16.00

n.a.

24.39

n.a.

50.31

1993/94

18.00

n.a.

24.80

*

58.57

1994/95

18.50

25.00

27.28

*

54.63

1995/96

19.00

28.00

34.46

*

68.56

1996/97

19.00

31.00

42.86

*

80.64

1997/98

20.50

36.00

58.98

*

62.45

1998/99

22.50

38.00

34.47

*

71.14

Notes: n.a. = not available. * = not applicable, as the Minimum Export Price was abolished as of 1993/94.

Source: Tobacco Board (various issues). Annual Administrative Report.

CTRI is an apex research body for tobacco in India, and has been successful through its multidisciplinary programmes in evolving a number of high yielding cultivars of tobacco and in improving quality. In addition to the CTRI programmes, six research stations - located in Andhra Pradesh, Gujarat, Karnataka, Orissa and Uttar Pradesh - under the All India Coordinated Research Project on Tobacco have evolved high yielding varieties for different types of tobacco for various states. They have also developed improved crop management and crop rotation systems.

4.4 CROP SUBSTITUTION POSSIBILITIES

4.4.1 Economics of tobacco versus alternative crops

Tobacco in India, as in many other countries, yields higher net returns per unit of land than most other cash crops, and substantially more than food crops. Currently, there are a few specialized crops in various areas that provide similar incomes, but it is estimated that these crops would not remain remunerative if total production increased. The economics of alternative crops is generally based on experiments carried out on a limited area at research stations under optimal conditions. More detailed research work is needed on a wider scale at farmers’ field level before firm recommendations can be made about them. In general, under farmers’ field conditions, most other alternative crops, as discussed below, are currently not as remunerative as tobacco. Should tobacco farmers need to diversify into other crops, they are likely to suffer economic hardship.

These alternative crops also require high levels of irrigation. Tobacco is preferred due to its drought resistance and suitability for growing under rainfed conditions. Other problems associated with substitution by other crops include the capital invested in specialized facilities created for tobacco processing, which cannot be used for other crops; the difficulties of finding substitute crops for rainfed areas; and the dependency of millions of people on bidi rolling and tendu leaf collection. Moreover, with an assured market and prompt payment of sale proceeds through the Tobacco Board, it will be difficult to replace FCV tobacco as a crop.

It is worthwhile comparing rates of return from tobacco with competing crops such as groundnut or cotton. For this, Karnataka is taken as a representative state for FCV tobacco. The data show that while tobacco typically yields high profits, it can also show severe losses at times (Table 4.5). Of the three crops, groundnut consistently showed reasonable profits over cost of cultivation. In contrast, cotton and tobacco showed fluctuations in profits. Though data are not available for comparable years, it may be assumed that the trend observed for several years for these crops will not have changed much in recent years.

In the light of oversupply of FCV tobacco in recent years, some comparisons have been carried out on profits from growing tobacco versus other crops in FCV-growing areas. The comparison indicates that some other crops can be grown in that soil, and that some of the crops can be more remunerative than tobacco. For instance, the Central Research Institute found that combinations of hybrid maize and black gram yielded promising levels of net returns per hectare in black cotton soils of Andhra Pradesh, as did hybrid maize and soybean.

Table 4.5: Net return from different crops in Karnataka (Rs/quintal)

Crop year

Groundnut

Cotton

Tobacco

1982/83

71.11

46.77

313.71

1983/84

121.61

103.13

146.94

1985/86

77.27

-57.71

n.a.

1986/87

119.15

-17.72

-1 069.31

1987/88

n.a.

n.a.

-432.25

1991/92

145.50

n.a.

1 110.00

Notes: n.a. = not available. 1 quintal = 100 kg.
Source: Directorate of Economics and Statistics. Cost of Cultivation of Principal Crops in India. (various issues).

Bidi tobacco is generally less remunerative to farmers than is VFC tobacco. Some studies have shown other crops, such as chili or cotton, or a combination of soybean and rabi sorghum, as well as groundnut and rabi sorghum, could give higher returns than a sole crop of tobacco. However, other studies (e.g. Kiremath, 2000; studies conducted by the Department of Agricultural Economics, University of Agricultural Sciences, Dharward, on Economics of Bidi Tobacco in Nippani Area in Belgaum District; and a Centre for Multidisciplinary Development Research (CMDR) study in three Talukas in Dharward Districts) have shown different results, with bidi tobacco yielding higher net return per hectare than soybean, sorghum, cotton or groundnut, with only sugar cane being more profitable than tobacco. Sugar cane could be the most favoured crop in the region wherever irrigation is available. Moreover, the extensive research programme carried out by CTRI show that currently no alternative crop tested under monocropping gives returns comparable to tobacco. Intercropping or double-crop returns were equal to monocropped tobacco (CTRI, 1999). It is important to stress that tobacco is generally raised as a sole crop, except in areas where ample and assured irrigation facilities allow a second crop.

4.4.2 Micro-level information on shifting from tobacco to other crops

Field studies carried out by the National Council of Applied Economic Research (NCAER, 1994) and by CMDR showed a number of major socio-economic factors encouraging tobacco growing:

The farmers favour tobacco cultivation as it generally yields higher returns than other crops. However, the cost of cultivation of tobacco is also much higher. It seems that farmers often do not consider the full economic implications - both costs and returns - of tobacco cultivation.

The Tobacco Board declared a complete crop holiday for FCV tobacco in Andhra Pradesh and lowered production targets for Karnataka from 40 000 tonnes in 1999/2000 to 25 000 tonnes for the 2000/01 season. As a result, some of the progressive farmers devoted a part of their tobacco areas to other crops, such as sugar cane, chili, groundnut or cotton.

The CMDR team surveyed 74 non-tobacco growers in the tobacco region of Karnataka, to learn about reasons for not cultivating tobacco (Table 4.6). It seems that the majority of such farmers were convinced of the economic difficulties of tobacco cultivation. It should be stressed that more detailed studies of these aspects are needed to derive further insights useful for policy formulation.

Table 4.6: Reasons why selected farmers in Karnataka did not cultivate tobacco

Reason given

Percentage of farmers

1. Labour problems

10.8

2. High cost of cultivation

25.7

3. Risk involved

2.7

4. Low price of tobacco

1.3

5. Irrigation is available (facilitating other crop cultivation)

36.9

6. Disease of tobacco plant

2.7

7. Maintenance of tobacco crop is time consuming and costly

2.7

8. Other

17.6

4.4.3 Economics of inter-cropping systems as an approach to agricultural diversification

Field experiments on inter-cropping conducted by CTRI’s station in Pusa, Bihar, from 1990 to 1997, showed that mixed cropping was more profitable than tobacco monocropping. Tobacco plus garlic; tobacco plus red kidney bean; and tobacco plus potato all showed potential to provide better returns than tobacco alone. Such inter-cropping systems may be the first step to moving away from tobacco. A package of mixed cropping, shifting to other crops with suitable crop insurance facilities, adequate farm inputs for the alternative crops, adequate marketing facilities, etc., would be needed to ensure the success of a policy of gradually shifting from tobacco.

4.4.4 Economic implications of diversification on tobacco land

An attempt is made below to assess the direct implications for farmers and agricultural labourers of shifting land from tobacco to alternative crops. CTRI identified certain next-best crops for different areas in a number of tobacco producing States. Net returns per hectare from all of these crops was generally lower than from tobacco alone. Thus, even if the farmers can grow these alternative crops, they are likely to lose rather than gain. Moreover, given the wide variations in quality and other specifications of tobacco and other alternative crops, the determining factors will not only be prices but also the capacity to expand production of alternative crops with requisite quality and to put in place support infrastructure. The results of the CTRI’s studies are used here to assess the impact on farmer income of substitution of tobacco by the next best alternative crops, while the official data on Cost of Cultivation of Principal Crops in India has been used to analyse implications for employment. The assessment has been worked out on a per hectare basis where such data are available.

The reduction in net income that might result from a shift to the next most profitable crop is estimated to average about 23 percent. This would amount to a considerable loss, especially for the marginal and small-scale farmers that constitute the bulk of the farmers in most States.

Bigger-scale farmers tended to adopt tobacco cultivation more than others. In rural areas, a large number of households depend largely on tobacco for their cash income, especially in the three major tobacco growing states. Most of the marginal and small-scale farmers practice tobacco monoculture and rely mainly on this crop for their livelihood. They have to buy staple grains and other essential items for family consumption.

A study on the Tobacco Industry in Andhra Pradesh, commissioned by the Tobacco Institute of India, assessed the expenditure of tobacco farmers on baskets of household goods and services. The marginal and small-scale farmers depended on tobacco as the main source of their family income and livelihood. The overall average annual income of the tobacco farmer in the State came to about Rs l5 000. The largest share of household consumption expenditure was devoted to food items, some 67 percent. In the absence of detailed information in the study on consumption patterns, results of the survey conducted by the National Sample Survey of Household Consumer Expenditure for 1993/94 for Rural Andhra Pradesh (NSSO, 1996) can serve as a proxy. Among food items, cereals and pulses accounted for 24 percent and 4 percent respectively, with annual cereal consumption per household about 800 kg. Other major food items included milk and milk products (9.7 percent); fruit and vegetables (7.7 percent); and meat, eggs and fish (3.3 percent). Of non-food items, fuel and light accounted for 7.3 percent, followed by clothing (5.3 percent), while cigarettes and bidi were 2 percent of total household expenditure. Tobacco farmer’s household annual income and expenditure in Andhra Pradesh are summarized in Table 3.7.

To assess the impact on the food security of the tobacco-growing farmers if they were to shift their tobacco land to other crops, the overall reduction in income per hectare of 23 percent from the alternative crops has been used. With the loss of income from the tobacco crop, the farmer would need to readjust the family consumption expenditure pattern, either by devoting a higher share of family expenditure to food or by reducing food consumption, especially among the marginal and small-scale farming households. In the event of a total switch from tobacco production, with a consequent estimated average drop of 23 percent in annual household income, cereal consumption would contract by around 10 percent. Average family cereal consumption could decline from 800 to 720 kg. This would have an adverse affect on the health and well-being of marginal and small-farmer’s families, who are already undernourished.

A shift away from the tobacco crop would be likely to reduce the demand for hired labour in most states, as the hired labour required for alternative crops is substantially lower. Total labour requirements for alternative crops, including family labour, would be some 35 percent lower.

Table 4.7: Tobacco farming household annual income and expenditure in Andhra Pradesh

Item

Annual consumption

Rs

Proportion (%)

1. Food

10 000

66.6

2. Clothing and travel

2 000

13.3

3. Housing

1 000

6.7

4. Entertainment

1 000

6.7

5. Other

1 000

6.7

Average income of tobacco farmers per year

15 000

100.0

Source: COSMODE, January 2000. Tobacco Industry in Andhra Pradesh: A Compendium.

Any reduction in employment of hired labour in rural areas would seriously affect the landless labourers, who depend for their livelihood by working mainly in the agricultural sector, as well as for the marginal and small-scale farmers who supplement their earnings by working on other large farms as hired labourers. Therefore, the reduction in employment for hired labour in areas where the tobacco crop is replaced with other crops would result in increased economic and food insecurity, not only among a large section of the landless in rural areas but also among the marginal and small-scale farming families.

4.5 MARKETING CHANNELS AND PRICE DETERMINATION OF CIGARETTES

In 1984, a compulsory auction system was introduced for the Virginia varieties normally used in cigarette manufacture and sold in overseas markets. Generally, the farmer delivers bales of leaf to the auction platform.

The market for bidi tobacco, in contrast, is largely unregulated. As marketing of bidi tobacco is not under the control of any government agency, bidi farmers do not get prices as remunerative as in the case of FCV tobacco. Bidi tobacco is sold to traders at negotiated prices. In most cases the agent buys the bidi tobacco crop based on the smoke of leaf, leaf spangle and nicotine content. In most cases, the trading community finances the farmers, and so price setting power lies with the trader, and in most cases the farmer is not paid until almost a year after the sale occurs.

Processing of bidi tobacco is not a technology-intensive process. After the processing of the tobacco into flakes, the agent stores the tobacco until it is dispatched to the manufacturer. The processor also blends the tobacco according to the manufacturer’s requirements. The purchase of bidi tobacco from the farmer begins in February and March. After processing, the tobacco is stored for a period of 6-12 months for ageing.

The marketing and distribution of bidi tobacco continues to be the domain of the private sector and the industry is totally free. Currently, no effective institutional arrangements for the regulation or marketing of bidi tobacco exist, due to strong opposition of bidi tobacco traders.

Marketing channels for leaf tobacco, bidi and cigarettes are shown in Figure 4.l. All the marketing agencies are in the private sector, except for the Tobacco Board and the State Trading Corporation.

The cigarette market is oligopolistic, with four large manufacturing companies. The Indian market for cigarettes and other tobacco products is highly price sensitive. Following the reduction in excise duty and consequently prices in 1994, there was an explosion in demand for micros (cigarettes shorter than 60 mm). Trade sources estimated that consumption of micros rose from 300 million pieces in 1993 to around 4 000 million pieces in 1994, 18 000 million pieces in 1995 and over 19 000 million in 1996. However, with the increased excise duty on these cigarettes since the 1996/97 budget, demand has declined, and led to a drift back towards small filter products by some smokers and towards bidis by others.

Prices of different types and size of cigarettes depend inter alia on the level of and changes in excise duty imposed by the central government in its annual fiscal budget. Any more than moderate increase in excise duty (say over 3 percent) effectively raises prices of cigarettes. At times, a modest increase in taxation has helped to maintain retail prices. Owing to the variations in prices as a result of differential changes of taxation on different types and size of cigarettes, their share in total sales have changed considerably.

Figure 4.1: Marketing channels for bidis and cigarettes

4.6 INDIAN BIDI AND CIGARETTE INDUSTRY

4.6.1 The bidi industry

Bidi is tobacco rolled in a tendu leaf and tied by a string. Tendu leaf accounts for 74 percent by weight of bidi. Dark and sun-dried tobacco varieties are used in bidi production. Almost 80 percent of bidi tobacco comes from Gujarat, and the rest comes from Karnataka. Bidis account for over 50 percent of total tobacco use, compared with less than 20 percent by the cigarette segment. There are an estimated 290 000 growers of bidi tobacco.

The collection of tendu leaf that is used to wrap bidis forms an important link for the bidi industry. Tendu leaf is almost wholly grown on government-owned forestland, with around 62 percent of tendu leaf being grown in Madhya Pradesh.

Annual production of tendu leaf in 1994/95 had an estimated value of Rs 14 700 million. About 2 million people are engaged in leaf collection, while another 4.4 million people are employed directly for bidi rolling. Bidi rolling is concentrated in the states of Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Uttar Pradesh and West Bengal. Bidis are manufactured largely in the independent small-scale and cottage industry sector. There are a few large manufacturers of branded bidis, which tend to be closely-held, family-run businesses. The bidi industry is estimated to have used 268 000 tonnes of tobacco in 1998/99, 54.4 percent of the total apparent tobacco use.

4.6.2 Cigarette industry

Table 4.8: Production, exports and imports of cigarettes in India

Year

Production

Imports

Exports

million pieces

1950/51

20 700



1960/61

35 000



1970/71

63 100



1980/81

78 600



1981/82

90 600



1982/83

89 100



1983/84

87 300



1984/85

96 100



1985/86

82 400



1986/87

81 100



1987/88

77 800



1988/89

80 300



1989/90

83 500



1990/91

86 100


800

1991/92

85 700


6 428

1992/93

80 800

51

2 410

1993/94

78 800

25

3 456

1994/95

84 000

86

3 463

1995/96

95 600

134

1 461

1996/97

102 300

157

1 206

1997/98

104 600

252

1 446

1998/99

101 000

35

2 543

Source: Union Budget, and foreign trade data from Directorate General of Commercial Intelligence

Currently, there four major cigarette manufacturers in India: ITC Limited (formerly Imperial Tobacco Co.); VST Industries Limited (formerly Vazir Sultan Tobacco Co.); Godfrey Philips India Ltd; and GTC Industries Limited (formerly Golden Tobacco Co., Ltd.). There are a couple of smaller-sized cigarette companies with manufacturing facilities. As they lack the necessary marketing infrastructure, they produce cigarettes for the large cigarette companies on a sub-contractual basis.

Production of cigarettes reached a peak of 96.1 billion pieces in 1984/85 and then declined. It recovered again in the 1990s (Table 4.8). The Indian cigarette market was reportedly worth Rs 66 billion in 1997 (ERC Statistics International, 1998).

The average price for a pack of ten cigarettes increased from Rs 4 in 1990/91 to Rs 6 in 1998/99. Currently, the retail price of a pack of 10 cheap cigarettes is Rs 6, against Rs 3 for a bundle of 25 bidis. Bidis largely escape tax as most are produced in cottage industries across the country. Attempts to raise the taxes on bidis are often interpreted as an attack on the poor, and therefore regarded as politically inexpedient. Prices of cigarettes and other tobacco products in 1998/99 are compared in Table 4.9.

Table 4.9: Retail prices of cigarettes and other tobacco products.

Item

Average urban retail price

Bidi

Rs 3.50 per bundle of 25

Cigarette

Rs 6 per packet of 10

Cheroot

Rs 0.45 each

Snuff

Rs 17.10 per packet of 100 g

Tobacco - Huka (Huble-babal)

Rs 15.85 per 1 kg.

Pan Leaf Small

Rs 12 per 100

Pan Finished Ordinary

Rs 2 each

Raw Leaf

Rs 38.50 per 1 kg.

Source: National statistics. As at September 2000

4.7 ECONOMIC ANALYSIS OF TOBACCO MANUFACTURING ENTERPRISES

It is estimated that over 2.3 million persons depended on this sector for their livelihood. The annual wage bill in these enterprises averaged Rs 4 300 million, and annual wages per worker varied from Rs 8 400 in bidi factories to Rs 55 730 in cigarette, cigar and cheroot factories. The total net value added by all enterprises averaged Rs 15 000 million per annum, of which bidi factories contributed 41.2 percent, and cigarette and allied industries 34.3 percent. The total annual wage bill in the cigarette and allied industries, despite wages per worker being substantially higher, was only 4 percent of its gross value of output, compared to 16 percent in the bidi factories, because bidi manufacturing is more labour intensive. Bidi manufacturing is estimated to provide employment to more than 4.4 million workers, a large number of whom are women and children. If the forward and backward economic linkages are taken into account, bidis generated 1 310 million workdays, whereas cigarettes generated 340 million workdays (Table 4.10).

Table 4.10: Employment (formal + informal) in the bidi and cigarette industry, 1994/95


Cultivator

Processor

Manufacturer

Wholesaler

Retailer

Total

Full-time equivalent








Bidis

140 000

29 300

2 964 000

110 000

1 130 000

4 373 300

Cigarettes

124 000

2 200

10 620

110 666

886 066

1 134 128

Persons employed








Bidis

290 000

44 000

4 461 000

83 000

757 000

5 635 000

Cigarettes

267 000

3 278

10 620

81 616

543 000

906 090

Workdays (million)








Bidis

41.5

8.8

889.2

371.1

n.a.

1310.6

Cigarettes

37.1

0.7

3.2

299.0

n.a.

340.2

Note: n.a. = not available.
Source: Bidi and Cigarette Industry - A Comparative Status. Indian Market Research Bureau Report, 1996.

The bidi industry provides employment to a large number of workers - some 4.4 million workers employed in bidi rolling alone. Around 22 percent of these workers depend upon bidi rolling as their sole source of income. Table 4.11 shows comparative gross value addition per unit in the bidi and cigarette industries. The employment figures do not include the employment created in tendu leaf picking (in the case of bidis) or in the supplier industries for the cigarettes industry, such as the manufacture of paper, packaging and machinery used in cigarette manufacture.

4.7.1 Impact of introduction of new processing technologies and equipment

The cigarette manufacturing companies have been modernizing their processing and manufacturing facilities, with new or upgraded machines introduced for cigarette making. The impact of the advanced technology has been to improve processing, reduce component prices and improve quality and efficiency. It has also reduced cigarette damage and waste; reduced tar and nicotine levels through filterization; reduced usage of tobacco per cigarette; and improved cigarette paper and filter design. The share of filter-tipped cigarettes increased from less than 30 percent in 1970 to 66 percent in 1998. The reduction in tobacco used per cigarette has been significant. According to industry sources, currently about 750 g of processed tobacco is used to manufacture l 000 cigarettes, against the 1 000 g used three decades ago.

However, the cigarette industry in India has generally not kept pace technologically with the developed countries. For instance, the speed of cigarette makers and packers in India is 2 000 to 3 000 cigarettes per minute (cpm), compared to 7 000-10 000 cpm abroad. The plants abroad have a very high levels of automation in primary processing, material handling systems and secondary technology.

Table 4.11: Gross value addition by the bidi and cigarette industry


Bidi

Cigarette

Gross value generated per workday (Rs)

47

192

Gross value generated per million pieces (Rs ‘000s)

87.3

724.4

Gross value added per workday (Rs.)

31

135

Gross value added per million pieces (Rs ‘000s)

58.9

508.3

Equivalent full employment (million)

4.37

1.13

Total employment created (million workdays)

1 310.6

340.1

Gross value generated (Rs million)

61 110

65 200

Source: Bidi and Cigarette Industry - A Comparative Status. Indian Market Research Bureau Report, 1996.

The introduction of modern technology has had little impact on prices. In fact, retail prices of cigarettes have continued to increase, due largely to increased excise duty, which now accounts for some 61 percent of the retail price of cigarettes in India.

4.8 DEVELOPMENTS IN TOBACCO CONSUMPTION

Total consumption of tobacco products has been increasing in India, as in many other developing countries, notwithstanding the increased awareness of negative health effects. Total tobacco consumption increased from around 300 000 tonnes in 1971/72 to 450 000 tonnes in 1998/99 - an increase of 1.6 percent annually. Only about 20 percent of the total tobacco consumed in India (by weight) is in the form of cigarettes. Bidis account for about 40 percent of tobacco consumption (about 950 billion bidis), with the rest divided among chewing tobacco, pan masala, snuff, hookah, zarada and other mixtures. Cigarette smoking is essentially an urban phenomenon: 80 percent of cigarette smokers are in urban areas, while 80 percent of bidi smokers are in rural areas.

Per capita consumption of cigarettes remains very low by international standards. This reflects the lower level of incomes and the substantial use of cheaper alternative tobacco products resulting from traditional habits that are supported by the very low or non-existent taxes on these products. Manufactured cigarettes, on which heavy excise duty is levied, remain unaffordable for many. Per capita consumption of cigarettes declined from 99 pieces in 1990 to 87 pieces in 1993. However, the reduction in taxation on small non-filter cigarettes in 1994 attracted more smokers to switch from bidis, and also encouraged downgrading, both of which have helped increase per capita consumption quite substantially in the latter half of the 1990s. Thus, per capita consumption had reached l08 pieces/year by 1997.

Annual average consumption of cigarettes per adult (aged 15+ years) increased from 170 pieces during 1970-72 to 180 pieces during 1980-82. However, it declined to 150 pieces during the next decade, but recovered to 170 pieces during the last three years. Annual average consumption per adult of bidi increased from 840 to 1350 during 1996-98 (Table 4.12). The increase in consumption in tobacco products in general has been due to population increase, especially the smoking population, higher per capita income in real terms, (which increased from Rs. 1650 in 1970/71 to Rs. 3780 in 1998/99), changing tastes accompanying increased income, changes in prices of various products over time, and, last but not least, government taxation policy. Data on the smoking population are not available except for a survey conducted by NSSO (1996), which provided information on tobacco users in terms of proportion of population. Based on this information, the tobacco using population is estimated to have increased from 201 million in 1986/87 to 203.7 million in 1993/94, or an increase of around half a million annually.

Table 4.12: Annual consumption of cigarettes and bidis by adults

Period

Annual average number consumed per adult (aged 15+)

Cigarettes

Bidis

Total

1970-72

170

840

1 010

1980-82

180

1 130

1.310

1990-92

150

1 220

1 370

1996-98

170

1 350

1 520

Sources: WHO, 2000; ERC Statistics International, 1998.

The consistent growth of the bidi segment in the smoking market has been partly due to taxation being lower then cigarettes, which has given bidis a considerable price advantage. Other factors supporting rapid growth in demand for bidis include the traditional habit of bidi smoking in the family, which is passed on to the children; the relatively low income level of a large part of the population, especially among the rural masses; and increased use of bidis by women in rural areas in certain states, as there is no inhibition to their smoking. By contrast, the government taxation policy seems to have restricted growth of the cigarette market. From 1970/7l to 1997/98, cigarette taxes increased almost 15-fold (from Rs 31 to Rs 439 per 1 000 cigarettes). This resulted in smokers using more bidis. The Indian tobacco market is highly price sensitive. The price elasticity for cigarette consumption was estimated at -0.66 between 1967/68 and 1992/93, i.e. a 10 percent increase in price would result in a reduction in consumption of 6.6 percent. While increased prices have a constraining affect, the wide use of sponsorship of sport events, publicity and advertisement by the cigarette companies have helped introduce large numbers of young people to cigarette smoking (Vaidya, Vaidya and Naik, 1999).

Based on the NSSO (1998) survey data, the total population using tobacco was estimated at 203.7 million in 1993/94. Among these over 53 percent were smokers and the remaining 47 percent were using non-smoking tobacco products. Chewing tobacco was used by 34 percent of the tobacco using population. Around 12 percent used more than one product. Bidi smokers formed 78 percent of the smoking population.

Total annual private final consumption expenditure (PFCE), in current terms, on tobacco and tobacco products increased from Rs 8 billion in 1970/7l to Rs 236.7 billion in 1998/99. In real terms, based on official sources (CMIE, 1999) and industry estimates, it increased from nearly Rs 19 billion to Rs 54 billion. The share of tobacco and tobacco products rose from 2.6 percent of PFCE in 1970/7l to 2.9 percent. The cigarette segment accounted for 37 percent of total consumer spending on tobacco, while the bidi segment contributed 30 percent. The corresponding figure for the non-smoking sector was 33 percent. However, while for cigarettes as much as 61 percent of the total consumer spending went towards government excise revenue, the corresponding figure for the bidi segment was 5 percent. Moreover, the figure for the non-smoking sector, which has the highest share in consumer expenditure, was also only 4 percent in 1998/99. The annual spending per tobacco user was Rs 1 150. Annual expenditure per smoker is estimated to have been Rs 2 750 for cigarettes and Rs 835 for bidis, while for non-smoking tobacco users it was Rs 906.

Government policy regarding consumption of tobacco products applies mainly to its taxation measures and a limited control on use of tobacco products. The motivating rationale for tobacco taxation seems to be fiscal (i.e. to maximize the excise revenue). Measures to control the use of tobacco on health grounds seem to have had only a small impact, partly because only a few control measures are in place, and those are not fully implemented. These measures include bans on advertising cigarettes, but applied only on television and commercial radio stations; a single health warning on cigarette packets; and bans on smoking in public places, but in only three States.

Table 4.13: Trends in Indian tobacco use (thousand tonnes)

Year
(1)

Cigarettes
(2)

Bidis
(3)

Smoking
(2+3)

Other
(4)

Total
(5)

No.

%

No.

%

No.

%

No.

%

No.

%

1971/72

71

23.0

91

29.4

162

52.4

147

47.6

309

100

1981/82

86

21.2

189

46.6

275

67.7

131

32.3

406

100

1991/92

82

20.3

202

50.0

284

70.3

120

29.7

404

100

1992/93

77

18.6

217

52.4

294

71.0

120

29.0

414

100

1993/94

75

17.9

224

53.5

299

71.4

120

28.6

419

100

1994/95

81

18.6

231

53.6

311

72.2

120

27.8

431

100

1995/96

92

20.4

237

52.6

329

73.0

122

27.0

451

100

1996/97

98

20.6

255

53.7

353

74.3

122

25.7

475

100

1997/98

100

20.5

263

53.9

363

74.4

125

25.6

488

100

1998/99

97

19.7

268

54.4

365

74.1

128

25.9

493

100

Source: Tobacco Excise Tariff Committee reports on Indian Tobacco Statistics.

4.9 TRADE IN TOBACCO AND TOBACCO PRODUCTS

Exports of tobacco, along with other agricultural exports, receive various incentives. For example, export incomes are exempt from income taxation. Also, credit at subsidized interest rates is available for tobacco exports. Moreover, tobacco exporters can import necessary inputs duty-free, while they can import capital goods at concessional duty rates provided they are able to fulfil an export obligation, which may vary from four to six times the value of the capital goods. To promote exports of various agricultural products, including tobacco, the government also extends financial assistance in the form of grants for certain export promotion activities.

Raw leaf accounts for around 80 percent of the total volume and value of tobacco exports. Of raw leaf, FCV, which forms less than 25 percent of total production in the country, accounts for the bulk of exports, in terms of both volume and value, although its share has declined during the last three decades.

India accounts for only 4 percent of the world exports of raw tobacco. Total export earnings from both leaf tobacco and manufactured products in India have increased almost 25-fold, from Rs 326 million at the beginning of the 1970s to about Rs 8 100 million in 1998/99 (Table 4.14). This was partly due to the general increase in tobacco prices at the world level. During the last decade, tobacco export earnings increased from Rs 2 600 million in 1990/91 to Rs 10 600 million in 1997/98, but declined in the next year. Earnings from raw tobacco during this period increased almost three-fold, from Rs 1 900 million to Rs 6 300 million. However, for manufactured tobacco products they rose by only 145 percent, from Rs 699 million to Rs 1 700 million. Among tobacco products, exports of hookah paste accounts for around 80 percent in volume but only 40 percent in value terms. The share of cigarettes has declined since 1993/94, following the reduced demand from the former Soviet Union, with which India had a bilateral trade agreement.

Nearly two-thirds of exports of raw tobacco were to European countries, with Russia being a leading importer. Saudi Arabia is the single largest importer of hookah paste. Bahrain, Oman, Singapore and the United Arab Emirates import bidis from India. Russia has been the largest importer of Indian-made cigarettes.

Globally, most tobacco is consumed in the form of cigarettes. In India, however, the bulk of India’s consumption of tobacco is in non-cigarette forms. This mismatch between India’s product mix and world demand has hampered India’s export growth. To emerge as one of the leading players in the global tobacco market, India has to grow more cigarette-type tobacco (Virginia, Burley and Oriental) to integrate its economy with the world market.

Table 4.14: India’s tobacco exports in selected years

Year

Unmanufactured

Manufactured

Total

Quantity
(‘000 tonnes)

Value
(Rs million)

Quantity
(‘000 tonnes)

Value
(Rs million)

Quantity
(‘000 tonnes)

Value
(Rs million)

1960/61

46

146

2

11

48

157

Share (%)

95.8

93.0

4.2

7.0

100

100

1970/71

48

314

2

12

50

326

1980/81

79

1 248

12

163

91

1 411

1990/91

70

2 062

17

699

87

2.761

1991/92

72

3 427

15

477

87

3 904

1992/93

81

4 344

13

733

94

5 077

1993/94

92

4 060

9

797

101

4 857

1994/95

45

2 078

12

598

57

2 678

1995/96

72

3 614

12

597

84

4 211

1996/97

117

7 336

13

920

130

8 256

1997/98

137

9 722

8

890

145

10 612

1998/99

82

6 345

19

1 717

101

8 062

Share (%)

81.2

78.7

18.8

21.3

100

100

Sources: Tobacco Development Board (various issues) Handbook of Tobacco Statistics.
Directorate of Tobacco Development. Status Paper on FCV Tobacco.
Ministry of Finance, Government of India. Budget Documents.

FCV tobacco accounts for the bulk of the volume and value of exports, and generates around 80 percent of revenues from exports of raw tobacco.

With an average cost of production of Rs 25.60 per kg in 1997/98, Indian FCV tobacco has been perhaps the cheapest in the world market. Further, by virtue of absence of any governmental protection for this crop, unlike in many tobacco-producing countries, Indian FCV tobacco acquires an added edge in the competitive export market. Judged from the internationally accepted parameters of levels of protection, Indian FCV tobacco is the least protected and therefore has more favourable terms of trade.

The contribution of cigarettes to foreign exchange earnings is substantial. Cigarette exports touched nearly Rs 490 million in 1993/94 and accounted for 61 percent of the total earnings from manufactured tobacco products. The absence of an internationally acceptable brand name, non-conformity with international standards, and overseas marketing limitations imposed by foreign collaborators seem to be some of the reasons for India’s limited exports of cigarettes. Bidis are exported to several West Asian countries.

If India could reframe its tobacco production strategy and maximize the marketable surplus in the export-oriented varieties, so as to raise its production levels - especially of exportable varieties -it could boost its exports. The present pattern of exports, where raw tobacco forms the bulk of exports in both volume and value, needs to be reversed and value-added manufactured products (cigarettes) should form a greater part of export earning from the tobacco sector as a whole by the end of the current (9th) Five-Year Plan.

4.9.1 Imports

India imports small quantities of raw tobacco required for blending purposes for manufacturing international-brand cigarettes in the country. In recent years, imports of raw tobacco totalled around 300 tonnes per annum.

4.10 ECONOMIC SIGNIFICANCE OF TOBACCO

India is the world’s third-largest producer of leaf tobacco. It is also a very large consumer of tobacco products. Tobacco is one of the important cash crops in the country, and makes a significant contribution to the Indian economy in terms of employment, income and government revenue. It generates nearly Rs 20 billion of income per annum. The economic importance of the crop can be considered at three levels: farm households engaged in tobacco growing and processing; major tobacco producing States; and central government level.

Farm level

There are an estimated 850 000 growers of tobacco in the country, characterized by small family farms, with farmers owning less than 2 ha of land forming about half of all tobacco growers. However, based on field surveys carried out by Gujarat Agricultural University, Anand, in selected tobacco growing districts in Gujarat and Karnataka, the small-scale producers account for about a quarter of the tobacco area. In total, nearly 6 million farmers and workers depend on this sector for their livelihood. In addition, the tobacco sector provides direct and indirect employment to a large number of people in many related industries.

State level

The tobacco sector contributes to the States’ economies through crop production and to the exchequer through excise duty, as well as from their share in the net central excise duties. Tobacco cultivation is concentrated in three states: Andhra Pradesh, Gujarat and Karnataka. The additional excise duties on tobacco, which is distributed only among tobacco growing states, increased from Rs 3 477 million in 1979/80 to Rs 18 532 million in 1999/2000. During the fiscal years 1995 to 1998, the State Governments received annually 47.5 percent of the net proceeds of union excise duty levied on a number of commodities, including on tobacco products. It amounted to around Rs 240 000 million annually, of which the share from the tobacco sector is estimated to have been around 9 percent. These are an important source of revenue for the States.

Central government revenue

In India, excise duty is imposed on the entire range of manufactured tobacco products. In 1998/99, tobacco contributed about Rs 59 400 million to the central government’s revenue (Table 4.15), or 10.6 percent of total excise collection. Tobacco contributed Rs 7 790 million to export earnings in 1998/99, which was around 5 percent of the foreign exchange earnings from agricultural products. In addition, the central government also realized on average around Rs 2 000 million per annum from tobacco enterprises in the form of corporate tax during the last three tax years.

However, raw tobacco was exempted from excise with effect from 1979/80, primarily because the administration and collection of excise duty on raw tobacco was expensive as well as cumbersome, and control was ineffective. The consequent revenue loss from the exemption was more than compensated for by steep increases in tax rates on manufactured items. Although most manufactured tobacco products attract excise duties, tobacco products from cottage industries (bidis, etc.) are taxed at a much lower rate than those from the organized sector (i.e. cigarettes).

Bidi manufacturers producing less than 2 million pieces annually do not have to pay any excise duty. Bidis (other than paper rolled) produced without the aid of machines pay Rs 5 per thousand pieces. Other bidi manufacturers currently pay Rs l5.5 per thousand pieces. Pan masala is taxed 40 percent ad valorem (24 percent basic duty plus a special duty of l6 percent). Chewing tobacco and snuff with a brand name attract 50 percent excise duty (ad valorem).

Table 4.15: Trends in excise collection (Rs million per annum)

Year

Cigarettes

Other tobacco

Total
tobacco
excise

Total excise revenue

Excise

Share (1)
(%)

Excise

Share (1)
(%)

Excise

Share (2)
(all tobacco)
(%)

Share (2)
(cigarettes)
(%)

1971/72

1 930

69.6

840

30.4

2 780

20 610

13.5

9.36

1981/82

6 840

82.0

1 500

18.0

8.350

74 210

11.3

9.22

1991/92

24 500

89.1

2.990

10.9

27 490

245 140

11.2

9.99

1992/93

27 680

89.1

3.370

10.9

31 050

281 100

10.0

9.85

1993/94

27 400

87.6

3 870

12.4

31.270

311 460

10.0

8.80

1994/95

30.750

87.8

4 090

12.2

35 000

373 470

9.45

8.23

1995/96

34 270

84.9

4 880

15.1

40 360

401 870

11.0

8.53

1996/97

39 827

85.7

9 667

14.3

46 494

450 080

10.3

8.50

1997/98

44 924

86.1

7 225

13.9

52 149

477 000

10.9

9.42

1998/99

51 118

86.0

8 322

14.0

59 440

559 100

10.6

9.14

Notes: (1) Percentage share in total tobacco excise. (2) Percentage share in total excise revenue.
Source: Government of India. Budget Documents.

4.11 COSTS OF SMOKING

A task force of the Indian Council of Medical Research conducted a research study from 1990 to 1996 on the Cost of Tobacco-Related Diseases in India. The average economic cost of major diseases due to tobacco use in India in 1999 was estimated at Rs 350 000 for cancer, Rs 29 000 for Coronary Artery Disease (CAD) and over Rs. 23 000 for Chronic Obstructive Lung Disease (COLD). Total losses from these tobacco-related diseases in 1999 was about Rs 277.6 billion, equivalent to US$6.5 billion (Table 4.16). The medical experts, however, consider the estimated total loss to be an underestimate as it is derived from only a small sample.

Table 4. 16: Economic cost of major diseases attributed to tobacco use in India in 1999


Tobacco-related diseases

Cancers

Coronary Artery Diseases

Chronic Obstructive Lung Disease

Number of cases attributable to tobacco use





1996

154 300

4 200 000

3 700 000

1999

163 500

4 450 000

3 920 000

Average cost per case in 1999 (1) (Rs)

350 000

29 000

23 300

Total cost for all India (1999) (Rs billion)

57.225

129.05

91.336

Total loss (1999)

Rs 277.611 billion (» US$6.5 billion)

Notes: (1) Percentage share in total tobacco excise. (2) Percentage share in total excise revenue.

Source: Government of India. Budget Documents.

4.12 TOBACCO CONTROL MEASURES

To control the use of tobacco, the Central and State Governments have launched a number of schemes in recent years, with further measures under consideration.

4.12.1 Pricing measures to control tobacco demand

In India the motivating rationale for tobacco taxation seems to be fiscal, i.e. to maximize excise collection, rather to control tobacco use. The tobacco taxation policy also seems to be governed by concern that the people in the lowest income strata should pay less tax. The non-smoking tobacco products, commonly used among rural masses, are not taxed. Bidis, which are used by people in lower economic strata, were not taxed till the early 1990s, and currently are taxed only lightly. Non-filter cigarettes attract a much lower tax than filter cigarettes. The central government policy of keeping the prices of certain tobacco products cheaper for low-income groups ignores the potential higher occurrence of tobacco-related diseases.

Discussion on base and rate structure of tobacco taxation brings into sharp focus the conflict between tax objectives: revenue maximization or tobacco consumption control. For the ease of tax administration, the narrow cigarette sector is taxed at increasingly higher rates to satisfy revenue needs, while as much as four-fifths of tobacco consumption is either lightly or not taxed. If the objective is to discourage tobacco consumption, the existing tax base and rate structure is skewed and not in alignment with production and consumption patterns. At the same time, other macro-considerations, such as employment and income generation, and the nature of industrial organization, hinder any serious effort towards such an alignment. The end result is that tobacco taxation in India pursues neither revenue optimization nor tobacco control as an objective.

4.12.2 Non-price measures to reduce demand for tobacco

Advertising restrictions

The central government regulates advertising and promotion of cigarettes. The state governments regulate, at most, advertising of other tobacco products. Advertising of cigarettes is currently banned on television and commercial radio stations, and in government owned premises. Cinema, press and outdoor advertising is permitted, as is sponsorship of sports and other events and cultural activities. The use of hoardings and billboards is, however, restricted in certain areas and some sports grounds. Some state governments have started to follow the policy of the central government. For instance, in 1997, the Government of Delhi State imposed a ban on tobacco advertising. During 1997/98, some other states followed in imposing such a ban, notably Himachal Pradesh and Goa.

The central government has considered imposing a total ban on advertising of cigarettes under a new Tobacco Products (Regulation of Production, Supply and Distribution) Bill. The code would have prohibited the use of personal testimonials by those well known or those specifically working with children. Advertisements were also to be banned in any media aimed primarily at those under 18. However, the code had to be withdrawn in December, 1998, because of lack of cooperation from India’s domestic manufacturers. In particular, the code came into conflict with the promotion of tobacco products at sport venues and the use of prominent celebrities for tobacco promotion. The Tobacco Institute of India is preparing a new code for possible adoption by the tobacco manufacturers, modelled on similar agreements between government and the tobacco industry in European countries, such as the United Kingdom and the Netherlands. The new code includes standardized health warnings, the publication of tar and nicotine levels, and the introduction of age restrictions for tobacco purchase.

Health warnings

A single health warning (“Cigarette smoking is injurious to health”) is mandatory on packets and any advertisements.

Other restrictions

Smoking is currently banned in government offices, public transport (apart from air-conditioned railway coaches) and internal flights, cinema halls, theatres and government-run stadiums.

The Central Ministry of Health and Family Welfare set up an expert committee consisting of 21 professionals from various disciplines to examine various facets of the tobacco industry including economics of tobacco use. Following the submission of the report of this committee, if it is accepted by the government, additional tobacco control measures could be introduced, inter alia better enforcement of the control measures already in force and some new measures.

4.13 CONCLUSIONS

Tobacco production is an important source of income for India’s farmers. While alternative crops are available in terms of agronomic suitability, in general a move away from tobacco production would result in reduced income and food security for a considerable number of farmers. Manufacturing, particularly of bidis, is also a source of employment and hence of income for a large number of people. Thus any attempts to control the use of tobacco would need to take into account the economic impact on these sectors.

To be effective, measures to control the use of tobacco would need to address all forms of consumption, not only cigarettes. In particular, this would mean dealing with the economic and political difficulties of taxing, or otherwise controlling, bidis and other non-cigarette forms of tobacco consumption.

4.14 REFERENCES

Vaidya, S.G., Vaidya, J.S., & Naik, U.K. 1999) Results of a national study in India: sport sponsorship by cigarettes companies influences the adolescent children’s mind and helps initiate smoking. Journal of the Indian Medical Association, 97(9): 354-356, 359.

CMDR (Centre for Multidisciplinary Development Research). 2000. Economics of shifting from tobacco cultivation, 1997-2000. CMDR, Dharward, Karnataka. Study sponsored by Research in Tobacco Control, IDRC, Canada.

CMIE (Centre for Monitoring the Indian Economy). 1999. National Income Statistics, November 1999. Economic Intelligence Service, CMIE.

CTRI (Central Tobacco Research Institute). 1999. Status Report on Research Programme on Alternative Crops to Tobacco. CTRI, Indian Council of Agricultural Research, Rajahmundry, Andhra Pradesh.

Kiremath, G.K. 2000. Economics of bidi vs competing crops. Paper presented at the Tobacco Seminar. 29-30 November 2000, CMDR, Dharward, Karnataka.

DES (Directorate of Economics and Statistics, Ministry of Agriculture). 2000. Cost of Cultivation of Principal Crops in India.

ERC Statistics International Plc. (1998). India. pp. 1-38, in World Cigarette Report, 1998.

NCAER (National Council of Applied Economic Research). 1994. Export potential of the tobacco sector. Study, including sample survey carried out through the Rapid Rural Appraisal technique, sponsored by the Tobacco Institute of India, New Delhi.

NSSO (National Sample Survey Organization). 1996. Survey on household consumer expenditure. SARVEKSHANA, No. 69 (October-December). Department of Statistics, Ministry of Planning and Programme Implementation, Government of India.

NSSO. 1998. A note on consumption of tobacco in India. NSS 50th Round (1993-94). SARVEKSHANA, 21(3). (No. 74, January-March)

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