ECONOMICS OF TOBACCO IN INDIA

?? Cigarette consumption is very sensitive to changes in price. During 1990-1996, real price of cigarettes
(white sticks) has decreased by 43%, and consumption per pack has increased by 14.5%.

Trends in cigarette consumption and real price of

cigarettes in India,
1990-1996

Real price for a pack of 20

9 0.12
cigarettes/capita 15+

8
0.10 Per Capita
7
Pack of 20

cigarettes
Consumption/
6 pack
0.08
5 Real Price/
pack
4 0.06
3
2 0.04
1990

1991

1992

1993

1994

1995

1996

?? In 1995, cigarette excise taxis 34.2% of the average retail price of a pack of 20 cigarettes. This rate is
well below the average share of taxes in cigarette prices in high-income, upper-middle income and
lower-middle income countries.

Where does India stand in the World on its

cigarette prices and the percentage share of
excise taxes in cigarette prices in 1995?

3.50 80
USD/pack of 20 cigarettes

3.00 70
Average
60 price
% share of tax

2.50
50 (nominal)
2.00
40 Average
1.50 Tax
30 (nominal)
1.00
20 % of Tax
0.50 10 Share
0.00 0
High UMI LMI India
Income
?? During 1990-1995, Cigarette consumption has increased only in China, India and Indonesia. Other
countries have experienced decrease in cigarette consumption.

Per Capita Cigarette Consumption for Selected Countries 1990-

1995
Pack Per Capita

80
70
60
50
40
30
20
10
0
(15+pop)
China

Nepal

Singapore
Hong

Indonesia

Sri Lanka
Kong

Malaysia

Pakistan
India

1990 1995

WHO ARE THE SMOKERS IN INDIA

?? Upper-middle income households consume the highest cigarettes in urban and rural areas. Although
consumption declines in higher income group in urban areas, increasing consumption trend is observed
in rural higher-income households.
?? Poor households in rural areas are the lowest cigarette consumers.
?? The gap between urban and rural households in cigarette consumption is the highest in low and lower-
middle income households. Urban low and lower-middle income households consume more cigarettes
compared to the similar income groups in rural areas.

Cigarette Consumption Per Household by Income Groups in

India, 1993-1994
2000

1600

1200

800

400

0
Upto 20,000 20,001- 40,001- 62,001- Above 86,000
40,000 62,000 86,000

Rural Urban
?? Most developed countries has observed lower cigarette consump tion in higher educated groups. This is
the opposite in India. As the education increases, in urban and rural households with a higher education
smoke more cigarettes compared to lower educated households.

Tobacco Consumption by Education Category per

Quantity Purchased Per Household in India, 1993-94

1600
Household (00)

1200 Urban Quantity

Purchased Per
800 Household

400 Rural Quantity

Purchased Per
0 Household

secondary
education

Elementary

Degree
Higher
No
GOVERNMENT REVENUES

?? Excise taxes from cigarettes contributes 8.8% of total excise tax revenues. The share of cigarette
excises in total excise tax revenues has declined from 10% in 1993 to 8.8% in 1995.

% Share of the Tobacco Excise Tax

Revenue in Total Excise Tax Revenues in
India,
1993-1995
11
10
% Share

10
9
9
8
1993 1994 1995

?? Excise taxes from tobacco products (including cigarettes, bidis, and others) contribute 3.3% of total tax
revenues, and 2.6% of total revenues in India.

Percentage Share of Tobacco Excise Tax

Revenues in Total Tax Reveneus, and Total
Revenues in 1995

10
8
% Share

6
4
2
0
In Excise Tax in Tax in Total
Revenues Revenues Revenues
TOBACCO EXPORT EARNINGS

?? Among the types of tobacco products, India earns highest export income from tobacco leaves.

Export Earnings From Types of Tobacco

Products in India
1985-1995

120000
Thousand USD

80000

40000

0
CIGARETTES

PRODUCTS
CHEROOTS
TOBACCO

TOBACCO
LEAVES

CIGARS

NES
1985 1990 1994 1995

?? Export earnings from cigarettes have been declining since 1985. The highest declined has occurred
during the 1990-95 by 76%. Between 1994-1995, only tobacco leaves export earnings showed an
increase (99%). Other tobacco products export earnings has negative increase in 1995 compared to
1994.

% Change in Export Earnings from Types

of Tobacco Products in India

100
80
60
40
% change

20 1985-95
0 90-95
TOBACCO

CIGARETTES

CHEROOTS

PRODUCTS
TOBACCO
LEAVES

-20 94-95
CIGARS

NES

-40
-60
-80
-100
?? Total tobacco export’s earnings has decreasing share in total merchandise export and total agricultural
export earnings during the 1985-1994. Its share in the total merchandise export earning has increased
from 0.3% in 1994 to 0.4% in 1995. During 1994-1995, the share of the tobacco export earnings in

The Percentage Share of the Tobacco Export

Earnings in Total Merchandise and Total
Agricultural Export Earnings in
India
7
6
Percentage Share

5 % Share in Total
4 Merchandise
Export
3
% Share in
2 Total Agricultural
Export
1
0
1985 1990 1994 1995

agricultural export earnings has not changed (2.5%).

WHERE DOES INDIA STAND ON WORLD CIGARETTE AND TOBACCO LEAVES EXPORT
EARNINGS?

?? Export earnings from cigarette export was the lowest in 1995 when compared to the export earnings of
other tobacco products.

Export Earnings from Cigarette Export, 1985-1995

for Selected Countries

1600000
Thousand USD

1200000

800000

400000

Japan
China

China

India

Singapore
Kong,
Hong

Philippines
1985 1990 1994 1995

?? In 1995, tobacco leaves earned export income of USD117 million. Other tobacco products such as
cigar and cherots has USD 5.3 million, cigarettes USD 5.2 million and other types USD 10.5 million.
?? Export earning from tobacco leaves was comparable to China in 1995.

Selected Countries Export Earnings from

Tobacco Leaves 1985-1995

700000

600000
USD Thousand

500000
1985
400000 1990
300000 1994

200000 1995

100000

0
Kong,

Japan
China

India

Philippines
Malawi
Hong

Singapore

Zimbabwe

SMUGGLING

?? Smuggling is not an issue in India. Based on World Bank estimates, less than 1 to 2% of domestic
consumption is smuggled cigarettes.