Why India ignores a $16 bn smoking-led health crisis

By: Charu Bahri  

New Delhi: In January, the government asked for public opinion on tougher new laws to curb smoking: To raise the minimum smoking age to 21 from 18, and to ban the sale of single cigarettes, which account for 70 percent of nationwide cigarette sales.

People responded enthusiastically; 45,000 emails and 100,000 letters poured in to the health ministry, as Reuters reported earlier this month. What they said, however, is not known because the government hasn’t yet read the messages, according to a health ministry representative quoted in the story.

Like those messages, the World Health Organisation’s Report on the Global Tobacco Epidemic 2015 is largely ignored in India. Its single-line message: Raising tobacco taxes can help curb smoking.

Curbing smoking is very important to India for two reasons:

* About one million Indians die from smoking-related causes every year, which are among the top three ways to die.

* Smoking also saps Indians of money; more money, it emerges, than it earns for the government.

Indians aged 35 to 69 spent Rs.104,500 crore ($15.9 billion) in 2011 on diseases associated with tobacco-including cancer, respiratory diseases, tuberculosis and cardiovascular diseases. This figure is almost six times as much as central excise tax collections from all tobacco products that year, according to the Indian government, WHO and the Public Health Foundation of India.

To put the health cost of tobacco in further perspective, it exceeded the combined annual state and central government expenditure on health care by 12 percent in 2011.

Taxes on cigarettes rise – not enough – but they do. Bidis are the problem

A 10 percent price increase on tobacco products could cut consumption between two-eight percent in developing nations, according to the WHO. Tax hikes increase prices, which in turn lower demand and protect people from the ill-effects of tobacco.

“Raising taxes is a win-win situation,” said ArunThapa, acting WHO representative to India. “It’s good for human health and for the country’s fiscal health.”

Over the last 19 years, taxes on cigarettes in India have risen 1,606 percent. That isn’t quite enough and the six-tier tax structure is so complex – based on stick lengths and filters – that companies manipulate it with relative ease to keep demand intact.

The biggest problem in curbing tobacco use lies with the influence wielded by those who make the humbler – but more damaging – cousin of cigarettes, the bidi.

Taxes on a pack of bidis are seven percent of the retail price, less than a tenth of the WHO’s suggested level of 75 percent. A 20-stick pack of best-selling cigarettes is taxed around 60 percent of the retail price.

Bidi smokers make up 61 percent of the nation’s 120 million smokers, according to the Global Adult Tobacco Survey (GATS) 2010. This is a conservative estimate. Some studies peg the numbers of bidi smokers higher, at 73 percent and even 85 percent.

Bidi smokers face a higher risk of developing potentially-fatal chronic obstructive pulmonary disease (COPD), among other illnesses, because tobacco is packed more loosely in bidis, requiring smokers to inhale more strongly.

But the bidi industry has consistently squeezed concessions from the government.

Millions of jobs and livelihoods at stake, so taxes must stay low, argue bidi barons

Here are some concessions the government gives the bidi industry:

Handmade bidi units (98 percent of bidis are handmade) producing less than two million sticks in a year are exempt from excise duty.

Bigger bidi makers pay a duty of 1.6 paise per handmade stick and 2.8 paise per machine-made bidi. The duty on cigarettes varies between Rs.1.28 and Rs.3.37 per stick.

Some eight million people work as bidi rollers nationwide, said a representative of the All India Bidi Industry Federation.

“Imposing taxes on bidis and introducing pictorial warnings on bidi packs would lower demand,” said Sudhir Sable, secretary, All India Bidi Industry Federation. “Any fall in production would jeopardise the jobs of bidi rollers. It would also adversely impact tobacco farmers, as well as the thousands of corner shops selling the product.”

Increasing taxes on bidis would invariably increase the illicit trade in bidis, leading to the proliferation of fake bidis, Sable argued. It would also deprive states and the central government of tax revenue.

These arguments do not wash, say experts.

No socio-economic case for low bidi taxes, contend experts

In 2013, the bidi industry contributed less than three percent to the government’s central excise collection from tobacco products, not surprising, given the low excise duty it pays.

A Public Health Foundation of India study says there is indeed scope for taxes on bidis to be increased.

“Doubling bidi excise would help cut consumption by 40% and increase tax revenue by 22%,” said Monika Arora, director, Health Promotion and Tobacco Control Initiatives, Public Health Foundation of India.

Essentially, the argument goes, higher tax rates would offset any loss of excise from fall in consumption. In the bargain, spending on “useful” goods and services will grow.

“Money not spent on bidis or cigarettes will not disappear from the economy,” said PrabhatJha, founding director of the Centre for Global Health Research, University of Toronto. “It will be spent on other products which generate employment.”

Additional revenue could help the government meet the cost of transitioning bidi workers to other means of employment. The government has previously considered a cess on cigarettes to encourage farmers to switch from tobacco to other crops.

So, why not tax all segments of the tobacco-products industry, experts suggest, to fund a gradual transition? Bidi workers, among some of India’s most disadvantaged people, can only benefit.