Government policies fail to stub out growth

IN FOCUS/ CIGARETTE

Despite the government's various anti-smoking measures, domestic cigarette production in 2004 increased by five per cent to 97 billion pieces.

According to the Foreign Agricultural Service of the US Department of Agriculture, higher prices have not deterred sales of filtered cigarettes, partly, because of increasing consumer incomes.

Sales of mini-cigarettes have increased as a low-cost alternative to beedi (hand rolled, leaf.) Despite declining profit margins, the Centre continues to increase the excise duty on cigarettes.

Industry sources expect an additional tax burden following a shift to the Value Added Tax (VAT) system by most states on April 1, 2005.

Despite the government various measures to discourage use of tobacco like prohibition on smoking in public places, sponsoring of sports events by cigarette companies, and cigarette advertisements in mass media, the tobacco industry continues to flourish.

The tobacco consumption by the cigarette industry is likely to grow to 102,000 tonne in 2004 compared with 98,000 tonne in 2003. Flue Cured Virginia (FCV) tobacco accounts for about 76 per cent of the total tobacco use by the cigarette industry, which is largely dominated by English blends.

India's 2005 FCV crop is expected to be up 30 per cent, mainly due to increased yield and a 16 per cent increase in planted area, which resulted from the excellent monsoon rains in the major growing tracts of Andhra Pradesh and Karnataka.

Besides, increased investments in tobacco processing infrastructure, consistently better returns from tobacco compared with competing crops are encouraging farmers to grow tobacco despite the marketing problems they faced last year due to reduced quality.

Lower carryover stocks of roughly about 31,739 tonne in 2003 and increased export demand led to higher prices for cigarette tobacco in 2004. Industry expects the prices to firm up in 2005 due to a likely increase in domestic demand.

Cigarette exports is also expected to increase from 1.6 billion pieces in 2004, to an estimated 1.7 billion pieces in 2005. The continuing rise is attributed to the increased sourcing of Indian international brands and Indian premium brands by the European Union, Singapore, Malaysia, and the Middle East.

Consequently, tobacco imports, which saw a 10 per cent rise in 2004, are likely to increase further in 2005. Indian exports of unmanufactured tobacco in 2004 increased by 2 per cent to 128,000 tonne, due to increased demand from overseas with reported better quality leaves, and competitive prices.

However, unmanufactured exports during 2005 are forecast to decline to 1,10,000 tonne due to a stronger rupee and oversupply in the international tobacco market. Besides, China could negatively impact India's exports depending on its own export volumes.

Despite a relatively strong rupee and increased domestic production of international brands, cigarette imports are expected to increase to 100 million pieces in 2005 due to increased disposable income by consumers and better availability of international brands.