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Government's de-addiction policy: smoking, drinking to cost more after Budget

Tuesday, 8 July 2014 - 7:48am IST | Agency: dna

With the Prime Minister Narendra Modi government rolling out its first Union Budget on Thursday, health and tobacco lobbies are face-to-face on the issue of the expected price hike on tobacco products, specially cigarettes. 

Industry experts wonder whether the increase in the excise duty on cigarettes really dips their consumption or even increases revenues of the government. But the health experts think otherwise.  

Statistics reveal that despite a 9% dip in the volume of sales in 2013-14, excise revenue collections increased by just 2% . In the last two Union Budgets, two steep hikes in the excise duty rates of cigarettes have pushed up its price by almost 40%. And if one were to go by Union Health Minister Harsh Vardhan’s recent letters to state Chief Ministers and governors asking them to consider levying a VAT of 50% on all tobacco products, cigarettes prices are most likely to soar again. 

“Studies show that in a country like ours, a price rise of 10% will lead to a 4% dip in demand. However, these are empirical estimates, and cigarettes are typically more price inelastic than other commodities,” says Dr Rijo M John, Assistant Professor at Indian Institute of Technology, Jodhpur, who has done extensive study on the topic. 

Different states in the country have differential rates of VAT on cigarette prices; taxes in various states range from 15% to 65%. This leads to inter-state trafficking of cigarettes and tobacco-products.  “States must take the Union Health Minister’s seriously. A uniform VAT will curb inter-state trafficking of cigarettes,” says John. “We are still a while away from applying the recommendations of the World Health Organisation (WHO) of levying taxes amounting to 70%,” says Monica Arora of PHFI. “We must continue to levy more taxes, because that might not ensure a drastic reduction immediately, but it will make cigarettes not affordable for the youth with a sizeable disposable income will stop initiation. Increased prices also stop the poor from buying tobacco-products.”

In a study conducted jointly by the Public Health Foundation of India (PHFI) and IIT Jodhpur, authored by John, the team found that the total economic cost of tobacco-related diseases of people aged between 35 years to 69 years in India in 2011 alone stood at a staggering Rs 1,04,00,000 crore. Of this, Rs 16,800 crore were direct costs.
Tobacco products cause the loss of almost 1 million lives every year, even when the affordability of cigarettes in India was the lowest, according to a study from the Global Adult Tobacco Survey. India is also the second largest producer of tobaccos, and while cigarettes account for 15% tobacco consumption, they account for 85% of the revenue duty.

“We must continue to monitor tobacco sales aggressively, so that, keeping in tune to the immediacy of the matter, we can present  a healthy report in front of the Global Adult Tobacco Convention in 2015,” says Arora.

Period  Excise Duty Rate CAGR (%)  Excise Collections CAGR (%)
2003/04 to 2006/07  5.6 12.5
2007/08 to 2013/14  12 10.6
2013/14 18 1.9




Key points revealed by the study ‘Economic Burden due to Tobacco-Related Diseases in India in 2011’ (Age group - 35years to 69 years)
Total economic cost - Rs 1,04,00,000 crore
Direct costs - Rs 16,800 crore
Indirect costs - Rs 10383200

Other key points
Tobacco takes away 1 million lives every year

Affordability of cigarettes in India was the lowest, according to a study from the Global Adult Tobacco Survey. 

India is also the second largest producer of tobacco

Cigarettes account for 15% tobacco consumption, but amount to 85% of the revenue duty

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