The circle of smoke

The tobacco market in India was estimated to be worth around $13.5bn in 2009, growing at a CAGR of 8.5 per cent during 2004-09. Chewing tobacco was the key market in terms of market value accounting for around 55 per cent of the total market value. While increasing population and rapid economic growth are driving growth in the market, increasing government regulation and taxation, along with smuggling are trends slowing down growth in the market.

The good news is that per capita consumption has declined from 190 in 1970 to around 100 now. We do not know if there was a corresponding decrease in the incidence of cancer and other ailments. Whatever be the drop in stick sales it is very evident that rupee sales and profits have not shown any decline. Industry bosses can like the cigarette-smoking Dev Anand in Hum Dono and continue to sing: “barbadiyon ka jashn manata chala gaya, har fikr ko dhuyen mey udata chala gaya!” (I celebrated every act of destruction and blew my worries away in smoke.)

The decline in cigarette consumption has another silver lining. The consumption of mini cigarettes has fallen sharply by 16.8 per cent. But this does not necessarily mean good news on the health front as dropouts would have switched to bidis and gutka? This is evident from the fact that tobacco leaf production has increased from 3,37,100 metric tonnes in 1970 to 4,33,400 metric tonnes in 2000. Nevertheless, the decline in consumption, attributed by the industry to higher excise duties in each of the previous few budgets, means the policy is in the right direction and that there is a case for increasing the tariffs on cigarettes and bidis once again this year.

Despite this the numbers are still pretty impressive, the number of cigarettes smoked in 2000 was 71,474 millions. This was when India had a PPP per capita income of just $1,354. It is closer to $3,500 now.  Understandably the cigarette industry is shy about revealing consumption figures. But we have data from FAO. The FAO estimates that in 2000, the total tobacco consumption was about 4,703,000 tonnes. This is projected to rise to 5,638,000 tonnes in 2010. This must be music to the ears of the tobacco industry since manufactured and hand-rolled cigarettes (bidis) account for 85 per cent of all tobacco consumption. The FAO also forecasts that in 2010 the share of tobacco consumption in developing countries will come down from 34 per cent to 29 per cent and the poor countries will account for 71 per cent. It must be noted that cigarette manufacturing in India is with MNC-dominated companies and it is the conscious policy of these MNCs to shift their markets to Less Developed Countries (LDCs).

The cigarette industry will, no doubt, argue now that it is not wise to kill the goose that lays the golden egg. In this case it is not a golden egg, but a time bomb as each cigarette smoked now implies a future medical cost. It is not that the incidence of smoking is low in India if we take into consideration the widespread bidi habit. The NCAER has estimated that 348 million people belong to households with an annual household expenditure of over Rs 12,500. Logic suggests that the vast majority of cigarette smokers must come from this segment. With current cigarette consumption of around 90 billion, we have a per capita consumption of around 100 per year.

This is, by any standards, a very high and dangerous figure when you consider that cigarette consumption accounts for only about 25 per cent of the total tobacco consumption. Since thrice as many people consume tobacco either in the form of bidis or gutka we should consider ourselves as fortunate if the equivalent per capita consumption is not around 400 cigarettes a year. When we relate this to the data gathered from a 1994 nationwide survey that revealed that the prevalence of tobacco use among all adult men was 25.7 per cent and 35.3 per cent in urban and rural and means an even much higher average stick consumption among tobacco users.

The NSSO has estimated that when applied to the 1996 population, about 800,000 people died due to their tobacco addiction. In the same year medical cases due to tobacco-related ailments exceeded eight million of which 7.85 million pertain to coronary artery and chronic obstructive lung diseases.

In a paper presented at a WHO conference in 2002, G.K. Rath and K. Chaudhry have estimated the cost due to the treatment of tobacco-related diseases then to be around $6.5 billion. The FAO on the other hand estimates that in 2010 India will lose close to 24 million man-years due to tobacco-related diseases. This only means that our GNP could be 2.4 per cent higher from 2010 but for tobacco-related diseases.

In other words a further loss of $24 billion. This translates into an annual loss of over Rs 1,50,000 crore, which is quite an astronomical figure. In stark contrast, tobacco-related taxation in 2006 resulted in revenues amounting to Rs 8,234 crore. Of this Rs 7,100 crore was from cigarettes. Quite clearly there is a case for higher taxation on all tobacco products.

Contrary to this the government seems to be encouraging tobacco agriculture. It is true that bidi manufacture is a labour intensive business, but it would be quite easy to estimate that the benefits due to this are far outweighed by health costs, most of which are borne by the state. In most developed countries taxes account for 50-70 per cent of tobacco product sales prices. In India it is still around 10 per cent. Clearly there is much scope for more taxation. The World Bank has clearly evidenced that a 10 per cent increase in tobacco product prices will result in an 8 per cent reduction in consumption.

The writer held senior positions in government and industry, and is a policy analyst studying economics and security issues. He also specialises on the Chinese economy.