Tobacco products are cheaper than food in India

Thomson Reuters

A study has shown that tobacco products are more affordable than necessary food items in India. In other words, the increase in the prices of tobacco products is lesser than the increase in the prices of necessary food items.

The results of this study were mentioned at a recent discussion titled "Tobacco Taxation in India."

The study was conducted by the Union Ministry of Health and Family Welfare in collaboration with the World Health Organization (WHO) and non-profits such as Institute for Studies in Industrial Development (ISID) and Public Health Foundation of India (PHFI). Titled "Tobacco Taxes in India: An Empirical Analysis,” it points out that the tax part of the prices of tobacco products has steadily declined from 2006 - 07 to 2012 – 13 while the prices of necessary food items such as pulses, cereals, and others have steadily increased.

While the rate of food inflation in 2006-2007 was 9.6 percent, it was -0.16 for smokeless as well as smoking tobacco products. While the food inflation rate in 2013-14 was 12 percent, the tobacco inflation rate was only 4.5 percent.

Shailender K. Hooda, ISID faculty member who co-authored the study, said: "We compared food items with tobacco products because food is essential for survival. If prices of food are increasing at such a high rate, but not of tobacco, which is bit health hazard, then we need to analyze this phenomenon."

The study also pointed out that the excise duty for cigarettes, which was 55.3 percent in 2008, declined to 36.8 percent by 2013. Similarly, the excise duty for beedies, which was 7.2 percent in 2011, declined to 5.3 percent in 2013. This excise duty is definitely lesser than the WHO recommendation of 70 percent of the retail price for all varieties of tobacco products. Article 6 of WHO FCTC, of which India is a member, clearly states that the prices of tobacco products must be hiked regularly and their tax rates uniformly increased.

Speaking of the importance of an effective tobacco taxation policy, PHFI President K. Srinath Reddy said: "Tobacco taxation policy is the most cost effective strategy for tobacco control and has the ability to affect consumption, prevalence and affordability. Higher prices of tobacco products can promote cessation and prevent initiation among young people."

PHFI President K. Srinath Reddy said that cigarette taxation in India is not uniform as the government has increased taxes only for long cigarettes, exempting the shorter ones. In the meanwhile, the tax on beedies has remained the same.

The study recommends tax hike for all tobacco products as "the current excise and value added tax rates are not sufficient to make tobacco products unaffordable in India." It also says that tax exemptions on industries that product lesser than two million beedies and on shorter cigarettes should be lifted in phases.

Henk Bekedam, the WHO’s representative for India, pointed out that increase in tobacco taxation will not only lead to more revenue, but also better public health. He said: "A comprehensive tax policy leads to reduction in tobacco use, especially among young people, and at the same time provides increased revenues to the government."

This study will be considered by the Ministry of Finance at the next budget session.

Meanwhile, M. H. Suryanarayana, a faculty member of Indira Gandhi Institute of Development Research in Mumbai, which is managed by the Reserve Bank of India, says that tobacco and food prices cannot be compared as the consumer's nature also has to be taken into consideration. He said: "If consumer prefers tobacco over sufficient food, then even increase in price will not help." He said that the study ought to have taken into consideration several indicators, not just prices, for a study of this nature.

The latest National Family Health Survey (NFHS-4) results show that tobacco consumption has declined in two union territories and 11 states of India.

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