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India’s largest cigarette company may have a big problem—cigarettes

AP Photo/KevinFrayer
The Indian government doesn’t want this happening.
Published This article is more than 2 years old.

ITC, India’s largest cigarette maker, has been trying for years now to diversify itself.

The Kolkata-headquartered firm now makes biscuits and pastas, deodorants and shirts. It sells notebooks and incense sticks and has interests in agriculture, paper and packaging, and information technology. It even owns one of India’s largest chain of hotels, with around 9,000 rooms across 100 properties.

Yet, it just can’t get over the cigarettes business, as these three charts of ITC’s performance last year show.

Such overwhelming reliance on cigarettes, at least on the face of it, shouldn’t be a problem.

After all, India is home to the largest number of smokers in the world after China. Over 120 million people smoke here, accounting for 10% of all the world’s smokers.

In terms of per capita cigarette consumption, India’s smokers only contribute about 1.8% of global consumption, despite having 17% of the world’s population. That should mean there’s plenty of space for growth.

But India’s cigarette industry is burdened with taxation. Although cigarettes account for less than 15% of all tobacco consumed in the country, according to an ITC report last year, they foot about 75% of the tobacco industry’s total tax bill.

That number could be higher this year after finance minister Arun Jaitley raised taxes on most tobacco products in his maiden budget. Taxes on cigarettes and cigars were hiked between 11% to 72% to mainly discourage people from smoking, the government said.

Individual states in India also levy a separate value added tax (VAT) on cigarettes, which along with the other taxation, ITC contends, has helped the illegal cigarette industry flourish.”This segment has grown exponentially from 11 billion sticks in 2004 to 22 billion sticks in 2012, of which, 2 billion sticks have been added in the last year alone,” ITC said in a 2013 report.

And more government measures may be on their way. The government is reported to be considering increasing the minimum age of smoking from 18 years to 25 years, stopping the sale of loose cigarettes (about 70% of total sales currently), banning advertisements outside shops and hiking the fine for smoking in public a hundred times from Rs 200 ($3) currently.

For ITC, that’s not good news—and the markets have already responded: The company’s shares on the Bombay Stock Exchange fell 2% today.

Perhaps, it’s time for ITC to think of kicking the habit more seriously.

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