Analysing the contribution of the tobacco industry toward Indian economy
The usage of tobacco in India is unique and reflects long-standing cultural practices. The country is the third largest producer of tobacco and fifth largest exporter of the same in the world contributing enormously to its overall economic growth. India holds a prominent place in the world with respect to production of tobacco owing to varied agro-climatic conditions and different types of tobacco produced. Presently, tobacco is being cultivated in an area of about 4.93 lakh hectares (0.24%) covering different styles/types of tobacco with a production of 800 million kg, mainly from the states of Andhra Pradesh, Karnataka, and Gujarat.
What are the current dynamics in the Indian tobacco industry
Developments in the Indian tobacco industry have not been in line with international trends. The share of cigarettes in the total tobacco consumption in India is about 20%, compared with 85% globally. Internationally, there has been a considerable shift from traditional forms of tobacco - chewing tobacco, snuff, pipe, cigar/cheroot - to cigarettes, which is recognised to be the modern and more acceptable form of tobacco usage. Quite the opposite, however, has happened in India. The share of cigarettes has declined to 20% from 23% while overall tobacco consumption has grown.
How does the tobacco industry contribute to the economy?
According to the World Bank Report, the tobacco industry engages almost 33 million people in tobacco farming, of which 3.5 million are in India. The Indian tobacco industry provides both direct and indirect employment to 36 millions of people, which include 7 million farmers. So, it is safe to say that the Indian tobacco industry adds to the rural economy considerably. Tobacco is grown in India by small and marginal farmers, mainly in non-irrigated soils, on less than 2.5 hectares of land. About 400,000 small and marginal farmers grow cigarette tobaccos and over 600,000 grow non-cigarette tobaccos. No crop other than cigarette tobacco gives the farmer as attractive a return consistently in similar agro-climatic conditions.
The tobacco market in India is a significant feeder for the global demand for cigarette tobacco, and more than 20% of India's entire tobacco production is exported. This significant export volume leads to higher foreign exchange earnings, and the huge potential for India's tobacco exports can be fully realised by developing tobacco consumption in line with consumer aspirations and by adopting measures to increase cigarette consumption at the premium end.
The tobacco industry in India generates significant revenue for the government as almost 90% of the taxes are accrued from cigarettes. India's population has a very wide range of income distribution. High rates of taxation on cigarettes are intended to keep cigarettes beyond the reach of a large number of tobacco consumers aspiring for cigarette form of tobacco consumption. The route to optimising excise revenue collection is an excise duty structure enables marketing of cigarettes for each income segment of tobacco consumers. Excise revenue collected from cigarettes is divided between the Center and the States in a ratio determined by the Central Government.