Major cigarette manufacturers including ITC, Godfrey Philips and VST, among others, have unanimously decided to shut down their cigarette factories citing ambiguity on the policy related to revision of 'graphic health warnings' on tobacco product packs.
The members of The Tobacco Institute of India (TII), who account for more than 98% of the country's domestic sales duty-paid cigarettes, said they are unable to continue manufacturing cigarettes and fear potential violation of rules if they continue production. The shutdown is effective April 1, 2016.
The move, according to TII, will result in an estimated loss of Rs 350 crore per day in production turnover for the Indian tobacco industry. Communicating the fraternity's decision in a media statement, Syed Mahmood Ahmad, director, TII, said that the Indian tobacco industry had written to Ministry of Health & Family Welfare on March 15, 2016 to seek clarification on the matter.
The centre had earlier prescribed larger pictorial warnings covering 85% of the packaging space, which comes into force starting April 1, 2016. However, on March 14, the Committee on Subordinate Legislation came out with another report recommending 50% pictorial warnings covering on both sides of the packaging.
Abscence of a final guideline on the pictorial warnings has thus led to confusion in the minds of cigarette manufacturers. While TII is of the view that the existing pictorial warnings at 40% of the front of the pack are adequate to warn and caution consumers. The body approached the ministry for a final word but there has been no response from the regulatory officials on the same.
While the trade tends to have large stock of cigarettes that may be adequate for a couple of weeks or even a month, things can get bad if production gets held back for long. Analysts are of the opinion that the retail trade is likely to jack up prices sensing shortage and many customers may even move to illegal cigarettes in case of prolonged delay in production.
Speaking to dna, Sageraj Bariya, senior research analyst, East India Securities Ltd, said, "The immediate reaction to supply constraints will be an increase in price and black marketing. Besides, if manufacturing doesn't resume quickly and supply dries up, then the market will resort to smuggled products. This will result in big loss of excise duty for the government."
Elaborating on the possible impact on cigarette manufacturers and those depending on this industry for their livelihood, TII said that the extreme 85% warnings will promote illegal cigarette trade and adversely affect the livelihood of 45.7 million people dependent on tobacco which included farmers, labour, workers, trade and others.
"Indian tobacco farmers are under huge distress on account of shrinking legal cigarette industry due to high taxation and extreme regulations which have led to massive increase in illegal cigarettes. Illegal cigarettes account for one-fifth of the total cigarette industry resulting in annual revenue loss of Rs 9,000 crore to the national exchequer," TII said in the statement.
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