The government is considering a proposal to ban the sale of loose cigarettes, a move that will hit ITC and other cigarette makers hard as 70 per cent of retail takes place in this form. This is one of the many measures proposed by an expert panel set up by the health ministry. Other suggestions include raising the age limit for consumption and increasing the fine for smoking in public spaces to Rs 20,000 from Rs 200, apart from making this a cognizable offence. If accepted, these suggestions on curbing tobacco consumption could soon be part of tougher legislation being drafted by the Modi government, which it wants to introduce in the winter session of Parliament as it looks to curb the damage caused by the habit in the form of cancers, cardiovascular diseases and other health issues. Headed by the Delhi government’s former principal secretary Ramesh Chandra, the expert panel submitted its report to the health ministry last week. The expert panel also wants the government to impose a harsher penalty of Rs 50,000, up from Rs 5,000 now, on manufacturers for violating the provision on carrying pictorial warning signs on cigarette packets. Members of the committee, who spoke to ET on condition of anonymity, said the panel also recommended raising the age limit for tobacco consumption to 25 years from 18 years, banning advertisements at the point of sale, and increasing the size of health warnings to cover almost 80 per cent of packaging.
Currently, they cover 40 per cent of the pack front.Discouraging tobacco consumption appears to be high on the government’s agenda. Just five days after being sworn in as prime minister, Modi had tweeted: “On World No Tobacco Day, let’s pledge to spread awareness on the risks of tobacco consumption & work to reduce tobacco consumption in India.” Government likely to ban sale of loose cigarettes, Rs 20000 fine for smoking in publicThis seems to have had an impact on stocks. Since Modi came to power on May 26, only ITC has moved up (3.7 per cent) while rival stocks have fallen. Godfrey Phillips has lost 6.4 per cent, VST Industries 8.5 per cent and Golden Tobacco 30 per cent. In contrast, the Sensex has gained more than 10 per cent in the same period. ITC and Godfrey Phillips represent more than 90 per cent of the industry. Tobacco Institute of India Director Syed M Ahmad refused to comment on any specific proposal since the lobby group is yet to see the panel report. He said cigarettes form the smallest segment of tobacco consumption in India and any such moves will have little effect on other forms in the unorganised sector. These are largely non-compliant with laws, evade taxes and are far more affordable for tobacco consumers, he said. “Hence, the recommendations of the panel will only increase the level of contraband and illegal trade and shift consumption of tobacco to other forms as is evident today. In the process, it will severely impact the legal domestic cigarette industry in India and the livelihoods of over 38 million people who are engaged in tobacco whilst giving a fillip to smuggling,” Ahmad said.
ET reported last month on the constitution of the expert committee by Health Minister Harsh Vardhan to propose amendments to the Cigarettes & Other Tobacco Products Act, 2003 (COTPA). The government is working toward making its laws more compliant with the World Health Organisation’s Framework Convention on Tobacco Control, or FCTC, a treaty which lays down a set of universal standards to limit the use of tobacco worldwide. India ratified the FCTC in 2004, a year after enacting its own anti-tobacco legislation. The government is currently preparing a Cabinet note based on the recommendations of the panel. According to officials, the health minister has accepted the report but not all of the committee’s suggestions might find a place in the Cabinet note. “Some of the amendments suggested are too radical. Like, for instance, the government is in favour of increasing the fine on smoking in public places but what’s been suggested by the panel is too much. It will not be as high as Rs 20,000,” said a ministry official, who didn’t want to be named as he’s not authorised to speak to the media. According to analysts, the impact on volumes could be anywhere between 10 per cent and 20 per cent as only some consumers will be able to afford the shift to packets. Some fund managers told ET that this will create an overhang on the stocks of cigarette companies such as ITC and Godfrey Phillips which until now have been shielded from the slowdown in consumption due to the inelastic nature of cigarette demand. In the year to date, ITC has gained 11 per cent while Godfrey Philips’ stock has risen 17 per cent. To be sure, ITC has embarked on a strategy of diversification into other businesses away from tobacco over the past few years.
Any decline in sales, however, will cut both ways as the cigarette industry generates more than Rs 25,000 crore in tax revenue. Putting such steps into effect will be difficult. “It needs to be seen how the government will be able to implement this, as there are lakhs of pan shops and selling points and implementing this could be a challenge. In the past also, the government has come out with several norms related to smoking in public,” said Abneesh Roy, consumer analyst, Edelweiss Securities. “However, it has not been able to execute them entirely.” Tobacco Institute’s Ahmad said such recommendations will neither serve the government’s tobacco control aim nor maximise revenue from the sector. According to the grouping, India has a unique pattern of tobacco consumption with legal cigarettes accounting for just 12 per cent. The remaining 88 per cent is represented by illegal cigarettes and a host of traditional products such as bidis, chewing tobacco and khaini. It estimates that illegal trade in cigarettes leads to a loss of.`6,000 crore to the Indian exchequer. “As a result, while tobacco consumption in the cigarette form has declined from 21 per cent in 1981-82 to 12 per cent currently, overall tobacco consumption has increased by 42 per cent, making tobacco control policies in the country counter-productive,” Ahmad said. The government is considering a ban on the sale of electronic cigarettes, a vapour device that delivers a nicotine hit minus the smoke, ET reported last month. An expert panel on e-cigarettes constituted by the health ministry has recommended a blanket ban on the product, saying its safety has not been established.