The Kolkata-based firm said taxes on cigarettes have "increased by more than 200 per cent in last few years" which has resulted in smuggling of cigarettes and other forms of tobacco in India.
"If you look at the figures of tobacco consumption in India, over a long period it has not gone down. Tobacco consumption has only increased," ITC CEO & Executive Director Sanjiv Puri said in a media interaction.
From cigarettes, it has shifted to illegal cigarettes or to other forms of consumptions, he added.
"Legal industry has lost volumes to illicit trade... I think that's the concern we have and we really say that regulation should not be discriminatory to the cigarette industry," Puri said.
When asked if ITC, which is on a diversification drive into new areas, could exit the cigarettes segment considering the overall challenges in terms of regulations and health issues, he replied in the negative.
"We have, for sure taken the path of diversification over a period of time but we believe it is neither in our stakeholders' interest nor in the interest of the nation, for us to cede ground to the illicit trade, to smuggling, which has become a big menace in the country," Puri said.
Stressing that the current policy is hitting the legal cigarettes industry hard and in turn affecting tobacco farmers associated with it, he said "it does not serve any purpose for the legal industry to cede ground to illicit trade".
"So, at the end what happens is that Indian farmers lose, government lose revenue and Indian manufactures lose...," Puri said.
Commenting on the government's direction over 85 per cent pictorial warnings, he said: "Now research has recently shown that consumers prefer packs without warning and they are getting it (in India) because smuggled packs are coming."
He further said: "China, Japan and US which account for more than 50 per cent of cigarette consumption in the world do not have pictorial warnings."
In 2016-17, ITC's total consolidated income was Rs 60,493.05 crore, out of which the cigarettes business had contributed Rs 35,877.66 crore.
In the April-June quarter this fiscal, ITC's revenue from cigarettes increased 6.60 per cent to Rs 8,774.16 crore, from Rs 8,230.60 crore in the year-ago period despite high taxation.
The company, as part of diversification, is moving ahead in non-cigarette segment which contribute 58 per cent of its total revenue.