India 6th largest market for contraband cigarettes

At an estimated Rs.2,000 crore, India has become the sixth largest market for contraband cigarettes, casing huge revenue losses to the government and affecting the livelihoods of some five million tobacco farmers, says a study conducted for industry lobby Assocham. It could be a source of terror funding too, adds the study.

"These cigarettes evade the payment of excise, VAT, customs or any other applicable tax and are thus cheaply and attractively priced," says a recent study conducted by reputed research organisation Euromonitor that has a presence in 80 countries.

The legitimate cigarette industry, which was at 109 billion sticks in 2006-07, dropped to about 101 billion in 2010-11. In contrast, the illegal, duty-evaded segment has grown to about 20 billion cigarettes - about 16 percent of the industry, having grown by 82 percent between 2004 and 2011, making India the sixth largest illicit cigarettes market in the world.

Euromonitor estimates that illicit cigarette volumes in India will further grow and contribute more than 23 percent of the total industry size by 2016.

It says that "the vast majority of smuggled cigarettes in India are king size cigarettes, which retail at Rs.80 per pack of 20 cigarettes". The duty evasion therefore, is the highest in this segment.

According to the study, "the size of the contraband cigarettes market in India is about Rs.2,000 crore per annum and is threating the livelihoods of five million tobacco farmers. The problem of contraband cigarettes is especially severe in urban markets, but it is also endemic to India as a whole".

Since the contraband cigarettes do not use Indian tobaccos, "this aggravates the adverse situation faced by Indian tobacco farmers and threatens their livelihood".

"The growing share of illegal, contraband cigarettes has been responsible for significant erosion in demand for good quality Indian tobaccos, used by the domestic legal industry. It has been well documented by the WHO as well as the international media that international cigarette MNCs, faced with declining sales in their home markets, are seeking to expand their business in developing countries," the study says.

Significantly, the smuggled cigarettes do not carry the Graphical Health Warnings mandated by the Cigarettes and Other Tobacco Products Act (COTPA) "thus endangering the tobacco control policy of the government".

"In the absence of printed MRP on the pack of contraband cigarettes, smugglers and agents of the trade make a handsome margin. In cities like Mumbai, Delhi, Pune, Bangalore and Hyderabad, trade in contraband cigarettes is conducted with brazen openness: a variety of smuggled brands are found at almost every cigarette selling outlets and consumers can find their smuggled brand of choice with ease," the study says.

Contraband cigarettes are smuggled into India from China, Myanmar, Bangladesh, Indonesia, Pakistan, the Gulf, Southeast Asian countries and even Europe.