Tobacco is one of the major commercial crops in India. Irrespective of the health hazards associated with it, the Indian tobacco industry contributes significantly to the economy in terms of employment, income and government revenue. It is the second largest sector in terms of central excise revenue contribution after the oil and gas sector. The industry also acts as a major foreign exchange earner for the government. Besides tobacco farming and production, the Indian tobacco industry also comprises of companies involved in manufacturing, sales and distribution of tobacco products like cigarettes, cigars, beedis and chewing tobacco.

Fiscal year 2013 was a challenging year for the Indian tobacco industry. The increase in excise duty exerted pressure on the volumes as well as margins of the domestic tobacco companies. The tobacco production index slipped in the first half of FY13, but showed impressive recovery in the last quarter of the fiscal year. On a per capita basis, consumption of cigarettes in India is the lowest among Asian countries. The prevalence of low cost substitutes like beedis and hookah is the reason for this low consumption.

The consistent rise in excise duty and regulatory restrictions are the biggest challenges for the sector. However, India’s low per capita cigarette consumption bodes well for the sector.

Key Points:

• During 2010-2013, the central excise revenues from tobacco products grew at a CAGR of 21%.

• During 2007-2012, unmanufactured tobacco exports grew at a CAGR of 4.5% in quantity terms and 17% in value terms.

• The area under tobacco cultivation grew at a CAGR of 7% during 2007-2011. The increase in area under cultivation was accompanied by an increase in production. Tobacco production in the country grew at a CAGR of 15% during the same period.

• The overall index as well as tobacco production index slipped in the first half of FY13. However, in the last quarter of FY13 (January to March), tobacco products manufacturing registered an impressive recovery, with average year on year growth of 21.2%.