Saturday, October 12, 2013

Incredible challenges in Indian tobacco Industry




India is the third largest producer of tobacco which is 681 million kilos, next to China and Brazil and the second largest exporter of tobacco with 228,025 Metric Tons, next to Brazil. We have around 130,000 tobacco farmers, among them 89,855 were registered with Tobacco Board as a Flue cured Virginia growers with cultivated area of 2,15,000 hectares. Around 38 million people are directly or indirectly involved in various phases of tobacco industry for their livelihood.

The Indian Tobacco Industry contributes ₹ 4,980 crores of foreign exchange through exports and ₹ 17,415 crores through excise duties on tobacco products. Over 120 million Indians smoke, i.e. 10% of the world's tobacco smokers live in India and 102 billion sticks produced in India every year. India produces the tobacco which has lowest levels of pesticide residues.

We have some incredible challenges in our tobacco Industry which need to overcome.

India is the 6th largest illicit cigarette market in the world and about 16% of Indian tobacco products are illegitimate which the value is 1900 crores of rupees and hundreds of crores cigarette sticks are smuggled  in to the Indian market. Some of the studies say that the contraband market is may increase to 23% by 2016. The growing share of illegal cigarettes is reducing the demand of domestic tobacco industry, erstwhile in 2005/2006, the cigarette market size was 109 billion sticks and now it is reduced to 102 billion. This adverse situation threatens the life of 38 millions of tobacco dependents and big loses to Indian government since the illegal cigarettes evade the all kind of taxes like excise, customs, VAT and others.Allowing legitimate foreign brands into the Indian market is a wise decision to combat the contraband trade and prevent the losses of tax revenue. On top of that the Indian consumers’ tastes have changed and they are looking for world class products.

Indian Tobacco Industry is operated by a few domestic players and there is no effective competition. Farmers are not getting the prevailing price through monopolistic and unfair trade practices by domestic trade cartel. One biggest Indian company is controlling the 80 percent of market and it buys more than 60% of the cigarette variety leaf with lesser price which is nearly 50% below of global average. The company makes heavy margin but the farmers being paid by non-remunerative and unfair prices.

The UPA government banned the FDIs in tobacco industry in 2010, the Japan tobacco international was the victim of Inconsistence policies of the Indian government on FDIs and it has closed its operations in Dec2011. In April, 2012, some of the US trade bodies sent a representation to Indian Ambassador to USA, to consider the abilities of foreign companies to participate in Indian tobacco market and also they opposed the FDI Ban in Indian Tobacco Industry.

Tobacco farmers have been agitating against the monopoly and unfair trade practices and also not allowing FDI’s  is against to the Competition Act 2002 which prohibits anti-competitive agreements, abuse of dominant position by enterprises and also promotes the free and fair competition within the economy. The Department of Industrial Policy and promotion (DIPP) should rethink and review the FDI policies to allow foreign investments in tobacco industry since they allowed foreign investments in other industries. Indian farmers are looking for permanent solution to prevent the tobacco trade cartel's deceptive, monopolistic and unethical trade practices. They are eagerly waiting for international tobacco companies to participate in Indian tobacco industry for getting fair price among the competition and moreover the Indian farmers would like to be competitive to garner the major share in world market.

India has been a forerunner in the Framework Convention on Tobacco Control (WHO- FCTC) which is aimed to reduce tobacco cultivation and restricting the all kind of supports to tobacco farmers. India ratified the FCTC in 5th Feb, 2004, it is the Regional Coordinator for the South-East Asian Region and India has a legal obligation to implement the FCTC guidelines. Most of the Indian tobacco growers don't know about the FCTC, the Ministry of Health never discussed and notified to tobacco farmers while signing this agreement, now Indian government is pressuring the farmers to go out of tobacco cultivation. Cultivation is farmers’ birth right and they have right to grow any legal crop of their choice. Consuming tobacco is a social problem; the government should control the same by creating awareness and educating the civil society. As per article 17 of FCTC, the government should provide economically viable alternate livelihoods to the tobacco farmers while implementing the FCTC guidelines, there is no such thing or any scientific exercises were not conducted so far. FCTC treaty is autocratic and forcibly imposed one, Indian tobacco farmers are opposing the several articles in FCTC guidelines.

Protecting public health is unquestionably noble objective, controlling tobacco cultivation is  a complex and socio-economic issue that needs a pragmatic approach  and make involvement of key stakeholders at every stage for their smooth economic livelihood transition.