/CHAPTAR 3

CONCEPTUAL FRAME WORK

INDIA'S TOBACCO INDUSTRY AND MARKET
India is the world's third largest tobaccogrowing country. In 1992 it produced 7% of the
world's total unmanufactured tobacco and 14% of the world's total manufactured tobacco in
the form of cigarettes and bidis.
The overall contribution of the tobacco industry to India's large agricultural sector it employs
two-thirds of the country's labour force. Approximately 3.5 million people are employed in
tobacco cultivation in India, representing less than 0.5% of the agricultural labour force and
0.31% of the total labour force. However, manufacturing of tobacco products other than
cigarettes (bidis and various forms of chewing and smokeless tobacco) largely takes place
within the unorganized sector, providing employment for what is estimated to be millions of
women and children who work at home.
Bidi manufacturing is the largest tobacco industry in India. In 1998, a total of 858 billion
bidis were sold in India and sales are projected to reach 1031 billion by 2007. Guthka and pan
masala have become increasingly popular with young people.
The cigarette market was worth an estimated 60 billion rupees in the late 1990s. While four
Indian companies, Indian Tobacco Company (ITC), Godfrey Phillips Limited, Golden
Tobacco, and National Tobacco, control the cigarette market, foreign multinationals hold
stakes in three of them. Interestingly, these cigarette companies face significant competition
from the unorganized bidi manufacturers which are largely protected from high taxes because
of their status as smallscale industry.
Advertising by tobacco companies amounted to US$ 48.8 million in 1998. Marketing of
tobacco products has grown substantially in recent years with greater concentration on
advertising strategies such as event sponsorships, point of sale (promotional display material
where cigarettes are sold), and brandstretching (tobacco brand names on nontobacco
merchandise or services).

3.1 TOBACCO INDUSTRY:

The bidi industry remains the largest manufacturer of tobacco products in India. Bidis are
hand-rolled by more than 4 million poor people who work out of their homes. Through a
contractor, they are provided with the raw materials and are paid around 45 cents a day,
depending on the number of bidis made. Child labor in the bidi industry is common. In recent
years, a type of chewing tobacco called pan masala has also become extremely popular.
This chew mixture contains tobacco, areca nut and flavored additives. It is sold in small
packages that may cost 1-2 cents, cheap enough for even school children to buy. Cigarette
consumption currently represents less than 20% of tobacco consumption, but is expected to
rise to around 33% in the next ten years.12 Although bidis and chewing tobacco remain
popular among the poor due to their low cost, the cigarette companies have been engaged in
an aggressive campaign to convert Indias 250 million tobacco users and entice the young to
take up the habit. One of their tactics has been the creation of the mini cigarette, a nonfiltered and less-expensive version of a regular cigarette. Says a manager of one tobacco
company,
ITC also has extensive holdings in the tourism sector. The company runs ITC Hotels and the
WelcomeGroup chain, which services the upmarket business and leisure crowd. The
company is planning on investing around $300 million over the next five years to upgrade
and expand these holdings.20 ITC, which posted a 72% increase in net profit in 1998 to
almost $145 million, has attracted the interest of foreign institutional investors, Recent
developments bear this prediction out. Previously, foreign companies could only enter the
country through joint ventures, and had to export at least half of their production.22 Over the
past year the government has been loosening these restrictions, culminating in an August
1998 decision to allow multinational corporations 100% ownership of cigarette
manufacturing plants in the country, a move that has been fiercely resisted by public health
groups and unions.

3.2 STEPS TO CURB DEMAND

While this multifaceted bill is a big step for India in controlling tobacco use, its effectiveness
depends on additional major measures. Essential measures to comprehensive tobacco control

through demand reduction are the following: increased tax on all tobacco products; control of
smuggling; closure of all advertising avenues; and creation of an infrastructure for
enforcement of laws.

Taxation And Smuggling :- The tobacco industry in India is subject to a range of taxes
imposed by the Federal and State Governments. According to an industry report, taxation on
cigarettes accounts for around 55% of the average price of a packet of 20 cigarettes. The
same report estimated that total excise duty generated by tobacco products was around US$
1424 million in 1998; nearly 82% of that amount came from the sale of cigarettes.
It is also possible that with higher taxes on tobacco products in India, smuggling of these
products from neighbouring countries with lower tax rates will become a problem. Economic
theory suggests that the tobacco industry itself will benefit from the existence of smuggling.
Studies of the impact of smuggling show that when smuggled cigarettes account for a high
percentage of the total sold, the aver-age price for all cigarettes, taxed and untaxed, will fall,
increasing sales of cigarettes overall.

Restrictions On International Trade :- Free trade has been shown to increase

consumers' options and make production more efficient. A number of studies have shown that
it brings increased growth to low-and middle-income countries. While the arguments in favor
of free trade in general, then, are robust, tobacco is clearly more harmful to health than most
other traded consumer goods. The key issue for policymakers is to decide how to control
tobacco without jeopardizing the otherwise beneficial consequences of free trade.
In 1990, Thailand attempted to ban cigarette imports and advertising, a move that prompted a
challenge from U.S. tobacco companies. Thailand implemented strong demand-reduction
measures, including comprehensive bans on advertising and promotion, and strong warning
labels on cigarette packs.

Closing All Advertising Avenues :- The proposed legislation may prove less effective
at controlling tobacco advertisement since it has ignored some avenues of advertising and
promotion. Two developing countries, Brazil and Thailand, have recently passed legislation
that may be effective in this area.

The Indian tobacco industry, anticipating loopholes and gaps, is already employing unique
strategies to circumvent future laws. For instance, in 1998 the ITC aggressively promoted
their Benson & Hedges cigarette brand by hiring young people to roam Mumbai's bars,
colleges, and parks distributing free packets of cigarettes to increase the market share.
Similarly, it is reported that ITC has legally registered Wills Sport and Gold FlakeGolden
Getaways as two distinct brand names exclusively to promote sports and cultural events. The
proposed Bill does not include clear specific bans on all types of advertisement and it will be
difficult to counter such strategies.

Enforcement :- The Thai experience also demonstrates that legislation is not enough.
Although Thai laws are comprehensive, a major problem has been their enforcement. A 1996
Thai survey showed that 97% of 15yearolds were able to purchase cigarettes even though
the law states that tobacco products are restricted to those over 18 years of age. It is also
apparent that pointofsale advertising and brandstretching are also escaping Thai law due
to the lack of enforcement. Building an enforcement infrastructure in India appears to be
essential to the success of tobacco control and is a much needed government priority.

Prohibition Of Tobacco :- Tobacco's unprecedented capacity to damage health, a few

public health advocates have called for it to be prohibited, arguing that the problem of
tobacco is not in its consumption, but its production. Advocates of tobacco prohibition point
to the marked reduction in alcohol-related diseases when alcohol supply was restricted earlier
in the 20th century. For example, when alcohol supplies were restricted in Paris, France,
during World War II, alcohol consumption fell by 80 percent per capita. Deaths from liver
disease in men were halved within one year and fell by four-fifths after five years. After the
war ended and alcohol became freely available, mortality from liver disease re-turned to
prewar levels.
However, for a number of reasons the prohibition of tobacco is unlikely to be either feasible
or effective. First, even when substances are prohibited, they continue to be widely used, as is
the case with many illicit drugs. Second, prohibition creates its own sets of problems: it is
likely to increase criminal activity and entail costly police enforcement. Third, from an
economic perspective, optimal tobacco consumption is not zero. Fourth, the prohibition of
tobacco is unlikely to be politically acceptable in most countries. In India, recent attempts to

ban a chewed type of tobacco known as gutkha failed, largely due to a political backlash
against prohibition.

Restrictions On Youth Access To Tobacco :- There have been a number of attempts

to impose restrictions on the sale of cigarettes to teenagers in high-income countries. In their
existing form, such restrictions have not been shown to be successful. In general, youth
restrictions are difficult to enforce, especially given that young teenagers often obtain
cigarettes from their older peers, and, sometimes, from their parents. Moreover, in lowincome countries where tobacco consumption is rising, the necessary systems, infrastructure,
and resources for implementing such restrictions and enforcing them are much less widely
available than in the high-income countries.

Politics And Economics Of Tobacco Control :- The tobacco lobby has argued that
tobacco control measures can negatively impact the economy by creating massive
employment loss. Simulation of the net impact of tobacco control on the Indian economy has
not been adequately investigated, making it difficult to assess accurately the effect of control
measures. However, studies from other countries demonstrate that employment losses occur
in the sectors that are immediately associated with cigarette production; however, these losses
can be outweighed by increases in employment in all other industries, particularly in labour
intensive service industries. Jobs lost in retailing tobacco are likely to be replaced by jobs in
retailing other products people can purchase with the money formerly spent on tobacco.
Therefore, taking into consideration the above Barriers we can conclude that Tobacco use in
India is projected to have devastating consequences. Only recently has the Indian government
begun to act on the seriousness of the situation and initiate a legislative process to combat this
social ill.

3.3 TOBACCO CULTIVATION:

India is a major player in the international tobacco market. It is the worlds third largest
producer of tobacco and the eighth largest exporter, responsible for around 6% of the world
trade in tobacco. In 1997, India cultivated over one million acres of tobacco, producing
604,500 metric tons, a 2% increase over 1995. Around 70% of this was used in the
production of bidis and other non-cigarette tobacco products. Tobacco exports, meanwhile,

have been booming in recent years, reaching 115,000 metric tons in 1997, a 48% increase
from 1995. The bulk of these exports are going to the countries of the former Soviet Union
where the multinational tobacco firms, engaged in a massive build-up there, have come to
rely on India as a source of cheap filler tobacco. This export boom has been facilitated by
the presence of U.S.-based tobacco leaf companies such as Dimon, Universal Corporation
and Standard Commercial. These companies buy and in some cases process Indian tobacco
leaf. Standard Commercial, for example, recently announced the construction of a factory to
process and market tobacco, primarily for export. President and CEO of Standard, Robert
Harrison, says that the company will have the most modern threshing plant operated by a
leaf merchant in India....we anticipate increasing demand in future years. Referring to the
growing presence of the cigarette multinationals in India, the company says that the venture
will give it the opportunity to participate in the domestic market as our multinational
customers continue to expand into
this region.

3.4 PREVALENCE & HEALTH ISSUES:

Around 200 million men and 45 million women in India use some form of tobacco.
Unlike in many countries, the use of traditional tobacco products in India is still quite strong.
Bidis account for over 40% of tobacco use, cigarettes for around 20%, with the rest
accounted for by various forms of chewing tobacco. Domestic consumption of tobacco is
growing steadily, at between 5% and 7% between 1993 and 1996. Currently, around 1 trillion
bidis and 90 billion cigarettes are consumed each year. Tobacco use among children in India
is of particular concern. Each day, 55,000 children in India start smoking, compared to
around 3,000 each day in the United States. According to a recent survey, approximately 4.65
million children under the age of fifteen are addicted to tobacco. Tobacco use exacts a heavy
human toll on Indian society, claiming some 630,000 lives a year, or the equivalent of four
747s full of people crashing every day. Half of all cancers in men and a quarter in women are
caused by tobacco use. Because of the widespread use of chewing tobacco, India also has one
of the highest rates of oral cancer in the world, accounting for one-third of all cancers in the
country. Tobacco use also exacts an enormous economic toll on the country. The Voluntary
Health Association estimates that tobacco-related illnesses cost the government some $11
billion a year.

5 TOBACCO CONTROL:
The recent enactment of legislation for tobacco control and ratification of the Framework
Convention on Tobacco Control (FCTC) by India should only be regarded as steps which
mark the beginning of a major national effort to deal effectively with an active and
increasingly menacing threat to health and development. The follow up process requires a
comprehensive multi component strategy which is implemented through coordinated multi
sectoral measures.
Such a strategy should combine measures for demand reduction as well as interventions
intended for reduction of supply. In economic theory, demand reduction usually leads to
supply reduction, as the market learns to adapt to the changing consumer preferences. This is
true, to a considerable extent, also of tobacco. Hence the great emphasis laid in most policy
recommendations on the positioning of a package of demand-reduction measures as the
keystone of a tobacco control strategy. However, the tobacco trade does not represent a
perfect market where demand supply relations follow such a logical and predictable course.
The practice of tobacco consumption itself is highly supplier driven and aggressively
promoted to entice and entrap the unsuspecting consumer. Furthermore, the volitional choice
of consumers is subverted initially by misleading messages and later by the unyielding grip of
an unshakeable addiction. Hence, the requirement of some supply-side action to supplement
demand-reduction measures to achieve early and effective tobacco control.
The government, through an executive order rather than legislation, has banned smoking in
hospitals, government offices, schools and on some domestic transport, and requires health
warnings on all cigarette packages. Cigarette taxes represent about 75% of the retail price.
However most bidis and other non-cigarette tobacco products are not taxed due to the decentralized nature of the industry and the political influence of the larger bidi
manufacturers.39 Because of the high incidence of oral cancer, the government is currently
discussing a ban on chewing tobacco after some recent surveys among school children in
Bombay showed that 12-18% of high school students were addicted to pan masala.
Manufacturers on the other hand contend that this is merely a ruse being pushed by the
multinational tobacco companies wishing to capture the Indian market

3.6 TOBACCO ADVERTISING:

Cigarette advertising is widespread in India, appearing in newspapers, magazines, and movie
trailers. In spite of protests by health activists, the government has agreed to industry requests

for a voluntary code of conduct for tobacco advertising. Taking effect on October 1, 1998 the
code will ban tobacco ads that use public personalities to promote the product or claim that
tobacco use leads to a better life. In Bombay, young people with black and gold t-shirts roam
the citys streets distributing free packets of cigarettes at bars, colleges and even playgrounds.
The company has also organized rock concerts with popular local performers where its logo
is prominently displayed.
Chewing tobacco companies, meanwhile, advertise through the sponsorship of sporting
events, cinema awards and even religious festivals. They also place prints ads depicting wellknown movie, sports and political figures. Cigarette company sponsorship of sporting events,
is still permitted, as witnessed by the recent agreement by ITC to pay $16 million to rename
the World Cup of Cricket the Wills World Cup and put its logo on all of the players uniforms.
The company has also paid Indian tennis stars to endorse GoldFlake cigarettes. The
advertising does work. A 10-city survey of over 9,000 students between the ages of 13 and 17
showed that after seeing the Wills World Cup Cricket Series, 13% felt a desire to smoke. The
survey also showed 72 % thought that there was at least one smoker on the Indian Cricket
Team that played in the 1996 World Cup. The advertising created the impression among the
1,948 children aged 13-16 years who participated in the survey that smoking gives more
strength, improves batting and fielding and ultimately increases the chance of winning.
Since so few women in India smoke, they are a particular target of the cigarette companies
advertising campaigns. The industrys response was that they were targeting emancipated
women, that the models used in the advertisements were in Western clothes and that in any
case the models were not actually shown smoking.
1

Children are exposed to tobacco advertising, promotion and sponsorship through paid
media, paid sports sponsorships and at retail stores.

The tobacco industry claims their advertisements are only for adult smokers and adult
non-smokers; studies have shown that industry advertisements effectively target nonsmoking youth.

Tobacco advertising, promotion and sponsorship foster positive attitudes towards tobacco
use among youth, which effectively motivates youth to smoke.

3.7 ISO 9001:2000 CERTIFICATION TO TOBACCO BOARD:

Tobacco Board in furtherance of its objectives, desired to improve its excellence by rendering
superior services to the utmost satisfaction of its customers namely, growers and traders in a

systematic manner. M/s. Det Norkse Veritas (DNV), Netherlands has bestowed the honour of
ISO 9001:2000 certificate to Tobacco Board for having established quality management
systems confirming with ISO 9001:2000 standards. Tobacco Board has begun to implement
systems aimed at achieving product integrity and traceability, model project area and quality
circles concept to improve the quality of tobacco leaf to meet the requirements of importers.
Board is committed to meeting the needs of customers. Board advises all the Indian
exporters to obtain ISO certification with a view to meeting the expectations of the global
market.
Export Promotion Activities undertaken:

Inviting official and business delegations from abroad.

Organizing visits of official and trade delegations abroad.

Participation in International Trade Fairs and Exclusive world tobacco

exhibitions & symposiums abroad.

Publicity by undertaking an extensive advertisement campaign in the

international media to promote Indian tobacco

Dissemination of Information and various enquiries received from overseas

customers to the exporters

Providing recommendatory, advisory and other support services to the Trade and
Industry.

Problem solving in Government Agencies and Organizations - RBI, Customs;

Import/Export Procedures; problems with Importers through Indian Missions
abroad.

Provision of inputs to the Central Government on policy matters relating to

export of tobacco and tobacco products.

3.8 EXPORT OF TOBACCO AND TOBACCO PRODUCTS

PROVISIONS OF FOREIGN TRADE POLICY:
Export and Import of unmanufactured tobacco and all tobacco products are under open
general license and hence can be imported or exported with out any restriction.
Export of Unmanufactured tobacco is exempted from compulsory pre-shipment
inspection (Agmark certification) by any Govt. Agency subject to the condition that the
exporter has a firm letter from the overseas buyer stating that the overseas buyer does
not want pre-shipment inspection by any official Indian inspection agency and the said
letter is filed by the exporter before the Customs authorities.
Export of un-manufactured tobacco and tobacco products are not subject to any price
controls like Minimum Export Prices restriction, and quota controls.

3.9 BARRIERS IN EXPORT OF TOBACCO & TOBACCO

PRODUCTS
The past decade has seen a significant paradigm shift in tobaccorelated policies that has led
to a significant curtailing of the use of tobacco in many countries. However, nearly all of
these advances have occurred in industrialized countries. Unfortunately developing countries'
policies have lagged far behind, and tobacco consumption in these countries continues to rise.
The Indian Parliament recently introduced a multifaceted tobacco control bill (the Tobacco
Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production,
Supply and Distribution) Bill of 2001). This paper summarizes tobacco use and its
consequences in India, examines the major legislative control measures that preceded this
comprehensive legislation, and discusses additional measures required to successfully curb
tobacco use in India.

3.10 ROLE OF THE GOVERNMENT

Given the objectives of protecting and promoting public health, enabling conditions need to
be created to help individuals make informed choices, to isolate the changing patterns of
vulnerability and develop effective response mechanisms for combating the same. It is
important to realize that the human rights paradigm cannot operate in a legal vacuum. Some
existing authority needs to enunciate the law and put into place appropriate enforcement and
redressal mechanisms. This is where the government (state) comes in. To be able to respect,

protect and fulfill its human rights obligations, the government has to bring about welldefined legislation to facilitate the functioning of legal systems.
Today, the philosophy of responsive communitarianism is gaining popularity among wide
sections of society. This essentially means balancing individual rights with social
responsibilities, or individuality with the community. The collective rights of the community
must have precedence over the rights of the individual smoker, especially since tobacco is
now well recognized to be a public bad. In asserting these principles, the government must
also recognize the special obligation to provide for the poor and less educated sections of
society whose right to correct information is least respected by the tobacco industry. Even in
the safeguarding of rights, special protection needs to be provided to vulnerable groups.
The fundamental reciprocity between health and human rights is well established and the
need to put in place a proper regulatory framework to aid and nurture this synergy should be
the guiding lights of policy-makers and analysts in this field. This is even more true of
tobacco control than of many other policies related to public health.

3.11 ECONOMIC IMPACT

In developing countries, many of the poorest smokers spend significant amounts of their
income on tobacco instead of basic human requirements such as food, shelter, healthcare and
education. A 2011 WHO systematic review found an inverse relationship between income
level and tobacco use. The study found that in low income countries, a median of 10.7% of
home expenditure was spent on tobacco in low income households.
1

In India, one study estimated that tobacco consumption impoverished approximately 15

million people while a separate study found that homeless people in India often spend

more on tobacco than on food.

Similar evidence in Sri Lanka shows that the expenditure of the poor on tobacco

compromises their ability to meet basic needs.

Extensive evidence, highlighted by a 2011 review, suggests that tobacco use in Vietnam

wastes household and national financial resources and widens social inequalities.
A study in Cambodia found a cycle of deprivation: low education results in an increased
likelihood of smoking which in turn leaves less money for education.

Contrary to the claims of the tobacco industry that tobacco farming brings positive economic
benefits to developing countries, most of the profit goes to the large multinational companies,
while many tobacco farmers remain poor and in debt.

12 TAXATION AND DUTY LEVIES

Tobacco is one of the most highly taxed markets in the Indian economy. Despite the fact that
it represents a comparatively small portion of overall tobacco consumption, cigarettes have
traditionally been the main objective for taxation. For instance, during the review period,
tobacco products accounted for 30% of total excise collection in India. However, 70% of all
taxes collected from the tobacco market came from cigarettes, which accounted for only 15%
of overall consumption in volume terms.
As in other countries, tobacco taxation is being used as a tool for tobacco control. Excise and
state duties on cigarettes have crumpled over the last few years. All states have increased VAT
on cigarettes beyond the approved rate of 12.5%. As a result of these increases the average
VAT rate now stands at around 15%. So while Indians may be becoming more prosperous, the
price of cigarettes continues to be beyond the reach of most tobacco consumers, With
cigarette tariffs 15 times higher than any other tobacco products, the tax prevalence is uttering
tobacco consumption as high taxes on cigarettes is driving a shift towards the consumption of
cheaper, low revenue products. Despite the governments intents to use tax increases to lower
the incidence of tobacco use, the affordability of low-cost alternatives is in fact serving
growth in overall tobacco consumption. Cigarettes segment of tobacco consumption has
decreased from 21% in 1981/82 to less than 15% currently.
During the Union Budget for the fiscal year 2013-14, the Indian Government drastically
raised the excise
duty on cigarettes. The excise duty on cigarettes was increased by 20 times from Rs 168 per
1,000 sticks in 2007 to Rs 3360 per 1,000 sticks in 2012. The government imposed an
additional duty on unfiltered cigarettes because they are considered to be more harmful than
filtered ones.
The hikes in excise duty are causing a shift in consumption patterns. Companies are being
enforced to pass on the excise burden to customers. With most consumers of unfiltered
cigarettes being those from the lower income groups, the price increases are hitting them hard
and pushing many to switch to bidis, Gutkha and other forms of chewing tobacco. These
compete with the governments efforts, as bidis and
chewing tobacco are known to be more harmful than cigarettes. Consumers are also projected
to shift to illicit cigarettes, which are much economical as a result of tax avoidance.

13 TOBACCO WATER

Tobacco water (known as tuibur in Mizoramand hidakphu in Manipur) is manufactured by

passing tobacco smoke through water. Its use was reported by 872 persons (7.2%) among the
12,185 adults surveyed in the Aizawl district of Mizoram and 139 persons (6.5%) among the
2137 adults surveyed in the Churchandpur district of Manipur; use was similar among males
and females. The frequency of tobacco water use varied from 1 to 30 times/day; in Aizawl
and Churchandpur districts, 36.7% and 92.1% reported being frequent tobacco water users
(more than five times a day), respectively.