India’s ministry of health is set to prohibit the sale of loose cigarettes, which would be a big blow to tobacco companies because an overwhelming 70% of the cigarettes sold in India are loose.
The proposal to ban the sale of single sticks was made by an internal panel to the healthy ministry. “The ministry has accepted the recommendations of the committee and a draft note for cabinet has been circulated for inter – ministerial consultation,” health minister J.P. Nadda said in a statement in the upper house on Tuesday.
Many smokers in India, including minors and students, prefer buying loose cigarettes because they are much more affordable than the whole pack.
The government increased the excise duty on cigarettes in the range of 11% and 72%, depending on the length of the stick, in this year’s budget. Despite this hike, cigarettes are still much cheaper in India compared to Western countries.
Individual cigarettes do not carry a statutory warning on smoking. But if such a ban does come into place, it would be hard to monitor.
“Since a large part of cigarette sales happens from kiosks, it is questionable whether the rule can be applied in practice. After all, one may think, how many kiosks can officers regulate?” said a research report by brokerage Kotak Securities (pdf).
“However, we note that, as the ban on cigarette smoking in public places illustrates, with sufficient incentives for authorized officers, monitoring can be fairly strong,” it added.
Also, this ban is unlikely to clamp down on tobacco consumption in India.
India is home to the largest number of smokers in the world after China. But cigarette smokers are only a small fraction of tobacco users in the country. According to a 2010 World Health Organization (WHO) report, the estimated number of tobacco users in India is 274.9 million, with 163.7 million users of only smokeless tobacco, 68.9 million only smokers, and 42.3 million users of both smoking and smokeless tobacco.
This ban would hit companies such as multi-business conglomerate ITC, hard. As India’s largest cigarette maker, it earned $164. 65 million in profits from cigarettes during FY14.
Shares of the company fell by 5% soon after the announcement was made.