Issue link: https://read.dmtmag.com/i/1531857
22 tobaccoasia Issue 1, 2025 January / February By Thomas Schmid India is the second largest producer of tobacco in the world and a leading global exporter. The industry provides livelihoods to 45.7 million Indians, in- cluding farmers, farm laborers, and factory workers. Tobacco products con- tribute US$8.67 billion in annual tax revenues and US$1.45 billion in foreign exchange earnings from exports. Overall, the tobacco sector currently contrib- utes an estimated US$204.8 billion to India's economy annually. These may be impressive figures, but India has a unique pattern of tobacco consumption. Legal cigarettes account for only 10% of total tobacco consumption, the re- maining 90% being made up of 29 other product types, including bidis, chew- ing tobacco, khaini , as well as, unfortunately, illicit cigarettes. Dropping affordability of legal cigarettes promotes illicit market Statistically speaking, India has one of the lowest per-capita cigarette consump- tion rates in the world, at just 90 sticks per annum. By comparison, the rate of China (the top ranking country) stands at 1,971 sticks per annum, while Russia (ranked second) clocks in at 1,542 sticks. And although India hosts 18% of the world's population, it accounts for only 1.7% of global cigarette consumption. But why is that so? The answer is relatively simple: Excessively high taxes have made legal cigarettes unaffordable for most consumers. According to data released by the World Health Organization (WHO), cigarette taxes in India are at a staggering 5.71% of per-capita GDP. That effectively is 14 times higher than in the US; 7 times higher than Japan; 6 times higher than China and Germany; 5 times Waves of tax hikes have steadily exacerbated India's illicit cigarette situation. India: Illicit Cigarette Influx Disadvantages Industry and Farmers B. V. Javare Gowda, president, FAIFA, the Indian farmers association. Credit: FAIFA ESSE, the South Korean brand and MOND, a UAE brand, are the two brands most commonly smuggled into India. Credit: TII higher than Russia and Canada; 4 times higher than Pakistan; 3 times higher than Malaysia and Thailand; and more than 2 times higher even than the UK and Aus- tralia, two nations notorious for their ex- orbitant cigarette prices. And just like in the UK and Austra- lia, a drop in affordability over the years in India has led to the expansion of the illicit cigarette market at the expense of legal products. The prevalence of illicit cigarettes in India skyrocketed between 2011 and 2023 in particular. There ap- parently is a strong relationship between the unaffordability of legal cigarettes, il- licit trade, and revenue collections. With increasing unaffordability, a large section of consumers shifted to tax-evading illicit cigarettes and other revenue-inefficient forms of tobacco consumption, like bidis or smokeless tobacco products which, on the basis of unit consumption, make up a multiple of that of legal cigarettes.