Over the past week I have been reading a lot about India’s tobacco economy and found a lot of stuff that must be shared. I would like to thank noted economist Swaminathan Aiyar in advance <for his post on his blog, Swaminomics> for his amazing insight into the matter and giving me a valuablrhead start into the topic.
When it comes to Tobacco control in India, the policies followed by the different arms of Union & State governments have inherent contradictions.
On one hand we have Ministry of Health & Family Welfare, which is actively seeking different measures to reduce the tobacco consumption in the interests of public health. These are the people who support imposition of heavy taxes on tobacco products, prohibition of the sale of tobacco to minors, imposition of restrictions on advertising of tobacco products etc.
While on the other hand, we have Indian Tobacco Board, under the Ministry of Commerce & Industry, which heavily promotes the development of tobacco industry in India. These people provide substantial incentives to the tobacco farmers and cultivators like electricity at nearly Zero cost and subsidies on fertilizers and various equipment for improving the yield & quality of tobacco etc.
How can the Government drive two absolutely opposite ideologies!
And, unfortunately that’s not all. In India, we have three major tobacco products, bidis, chewing tobacco & cigarettes. Of these, cigarettes are heavily taxed compared to others. Although, the sin taxes imposed on bidis and chewing tobacco is much lower. Majority of the tobacco consumption in India is by the means of bidis (nearly 48%) and the harm caused by them is almost same or may be even more than those of cigarettes. Although, the same metrics are not translated to their taxations. There is a blatantly wide difference in the sin taxes imposed over different tobacco products owing to large votebank for politicians. Nearly 10 Million people are involved in the tobacco industry, from cultivation to end product generation. So, increasing these taxes would not be politically viable. But, is that right and the only solution?
So, let’s get it straight on!
- First, we subsidize and incentivize tobacco farming.
- Then, we impose huge taxes on one form of tobacco products <cigarettes>.
- Most importantly, we don’t impose any substantial taxes over the major tobacco product <bidis>.
- Finally, we cry foul that volumes of tobacco produced and consumed are sky rocketing in india.
What an unexpected serendipity! <Sarcasm>
I wish this vicious nexus would have ended right there, but sadly, NO.
Apparently, the taxes imposed on such products to bring down the tobacco consumption are too low in India when compared to most other nations like USA, UK or Germany. So, we are trying to bring down the tobacco consumer count by encouraging tobacco production and levying low tax rates! <Sarcasm, yet again>
And guess what? Even the taxation system for bidis and cigarettes is faulty and unique when we talk about India. Let’s dive deeper.
Bidis are basically of two types, hand-rolled and machine-rolled. The government imposes taxes only over the machine-rolled bidis! Oh, why? Don’t the hand-rolled ones spread any health hazards or what? And guess what, the taxation policy for cigarettes is even more bizarre! We have six different tax rates for different lengths of cigarettes and filters. Does the length of the cigarette make it any less or more harmful? In fact, no other nation does that. Tobacco powerhouses manipulate these complex tax structure and policies to fill up more pennies into their big fat pockets.
Here it goes! In March 2015, in response to a drop in sales as taxes more than doubled over four years—India’s leading cigarette company ITC Ltd. shortened its discount Bristol-brand cigarettes by 5 mm. That 5-mm cut allowed Bristol cigarettes to make use of India’s complicated six-tier cigarette-tax system and fit into the lowest tax bracket. So, a pack of Bristols costs the same as before.
The Tobacco economy of India is a mess. But, unfortunately only a few know about it. And the worst thing is that even fewer people care about it. This was a bit of an insight that I was able to gain on the Tobacco economy of India, that most of us are unaware of.
Keep reading more. Keep exploring more.