Government to Stub Out Cigarettes!

Stub Out Cigarettes
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Parliament’s standing committee has recommended a ban on the sale of loose cigarettes to reduce tobacco use in India. How will this affect tobacco manufacturing companies? Let’s find out.

What’s Happening?

Back in September 2019, the Ministry of Health advised that the consumption of e-cigarettes is harmful. Hence, the government banned the manufacturing and selling of e-cigarettes. But, even after banning e-cigarettes, tobacco consumption does not seem to subside. According to Times Now, India is a leading tobacco consumer after China. 

Tobacco consumption is driven by cigarettes which leads to cancer. India loses lakhs of people annually because of tobacco-related illnesses. Hence the Ministry of Health is concerned about it. 

Recommendations of Standing Committee of the Parliament

According to Zee News, a survey showed that 46% of the people who smoke are illiterate, while 16% are college-going students. Moreover, the sale of loose cigarettes is widespread across the country. 

Below are the recommendations of the standing committee of the Parliament:

  • Banning the sale of loose cigarettes assuming that a consumer would be less likely to pay for a full pack.
  • Eradication of all smoking zones from hotels and restaurants.
  • Increasing taxation on tobacco and tobacco-related products. Currently, the government imposes a 53% GST on cigarettes, 22% GST on bidis and over 60% GST on smokeless tobacco (chewing tobacco). According to Economic Times, as per the recommendations of the World Health Organization (WHO), the government of India may implement a 75% GST on tobacco.

How Will It Affect Indian Tobacco Manufacturing Companies?

ITC and Godfrey Phillips are the two market leaders of cigarettes in India. They together hold nearly 80% of the cigarette market share. 

Regarding the ban on single cigarettes, according to Economic Times, industry analysts believe that the ban will lead to higher consumption and sales as consumers will be pushed to buy the entire pack. After the news broke out, the share price of both the companies increased on 12th December 2022. 

If the government hikes GST on cigarettes, the company will pass on the cost to its consumer, which may lead to a fall in demand. But, there may only be a minuscule effect as the demand for cigarettes is inelastic to price. 

That’s it for today. Don’t forget to share the article with your friends.

*The companies mentioned in the article are for informational purposes. This is not investment advice.

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