The growth in the tobacco industry is greatly dependent on the policies of the

government (both excise related and ban of public smoking). Higher duties result in
higher prices of the product. Contraband cigarettes have become competitively
priced as compared to domestic brands given the frequent excise (price) hikes. It has
started affecting volume growth of domestic companies as the consumers are
showing resistance to price hikes.
India is the third largest producer of tobacco in the world. Tobacco in India generates
nearly Rs20 billion of income per annum at the farm, state and central government
levels.
At the farm level, some 850,000 farmers grow tobacco. Almost 6 million farmers and
workers depend on this sector for their sustenance, not to mention the number of
direct and indirect livelihoods connected with the tobacco sector.

Of the total amount of tobacco produced in the country, around 48% is in the form of
chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing
tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total tobacco
production. In the rest of the world, production of cigarettes is 90% of total production of
tobacco related products.

High government taxes on cigarettes is a key cause of concern for the industry, which amount
in excess of 130% of the net value of the product. Notably, the cigarette industry contributes
nearly 85% of the total excise collections from the tobacco segment. The industry faces a
problem in the form of the unequal distribution of excise burden.
Fiscal policies
Implementing tobacco control policies inevitably brings into play a conflict of
interests, in particular with regard to tobacco-producing and manufacturing countries. If all
tobacco-related industries and processes are included, the estimated employment rises to
almost 100 million – nearly 90 per cent of which is located in developing countries. 5 In
India alone the cigarette and bidi segments (see appendix) accounted for some 6 million
jobs 6 and generated income to the tune of Rs126.3 billion in 1994-95 (see table 5. 1).
Since tobacco is a significant foreign exchange earner in many developing countries
and a significant source of state revenue, any tobacco control policy must first of all obey
the economic imperatives imposed in public policy-making; in the interest of income,
employment and securing state revenue, governments in tobacco-producing developing
countries support the crop with subsidies and price/marketing support. The tide runs
counter to such efforts if tax instruments designed to curb consumption are imposed.
Sarma illustrates the case of India where the Ministry of Agriculture and the Ministry of
Commerce take various measures to encourage production and export of tobacco while the
Ministry of Finance levies high taxes that nullify their positive effects. In order to resolve
such a conflict of interest, countries dependent on tobacco as a major provider of income,
employment, foreign exchange and government revenue will have to find viable
alternatives before any effective tobacco consumption control policy is set in place and
enforced.