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Excise Duties Crippling Cigarette Sales in India

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  Published in Business and Finance on Wednesday, January 28th 2026 at 11:02 GMT by Zee Business
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The Excise Duty Burden & Price Sensitivity

For years, the Indian government has relied on excise duties as a key tool for both revenue generation and public health initiatives aimed at reducing tobacco consumption. This strategy, while effective in increasing government coffers, is now demonstrably impacting cigarette sales. Each increase in excise duty is almost immediately passed onto the consumer, driving up retail prices. While cigarette manufacturers retain some capacity to absorb costs, the margin for doing so is diminishing.

The crucial point, as highlighted by CRISIL, is affordability. A substantial price hike impacts price-sensitive consumers - particularly those in lower-income brackets - pushing them to reduce consumption or seek alternatives. This isn't simply about abandoning cigarettes altogether; it's often about reducing the quantity purchased or opting for cheaper, often unregulated, options.

The Rise of Alternatives: HTPs and E-Cigarettes

The decline in cigarette sales isn't occurring in a vacuum. Consumers are increasingly turning to alternatives like Heated Tobacco Products (HTPs) and e-cigarettes. While HTPs offer a somewhat similar experience to traditional cigarettes, they are often positioned as potentially less harmful. E-cigarettes, despite facing regulatory uncertainty in India, have also gained traction, particularly among younger demographics.

It's important to note the regulatory landscape here. HTPs currently enjoy a relatively more favorable regulatory environment compared to e-cigarettes, which have faced import restrictions and advertising limitations. This disparity could further accelerate the shift towards HTPs. However, given the global debate around vaping and nicotine delivery systems, it's likely that regulations surrounding all alternative tobacco products will tighten in the coming years.

Regulatory Pressure: A Tightening Grip

The Indian government's approach to tobacco control extends beyond excise duties. Stricter advertising bans, coupled with the requirement for large, graphic pictorial warnings on cigarette packs, aim to discourage consumption and raise awareness of health risks. Future regulatory actions could include restrictions on ingredients, further limitations on advertising and promotion, and even potential bans on certain types of cigarettes.

This multifaceted regulatory pressure creates a challenging operating environment for cigarette manufacturers, requiring them to constantly adapt and innovate to remain competitive. Simple price increases alone are no longer a sufficient strategy.

Impact on Industry Giants: ITC & Godfrey Phillips

Leading players like ITC and Godfrey Phillips, which dominate the Indian cigarette market, are expected to bear the brunt of these headwinds. CRISIL predicts that these companies will attempt to mitigate the declining volume by increasing prices and diversifying their product portfolios. ITC, in particular, has already been actively investing in other fast-moving consumer goods (FMCG) segments, such as food and personal care, to reduce its reliance on the cigarette business.

However, diversification can only go so far. The cigarette business remains a significant revenue contributor for these companies, and a sustained decline in sales volume will inevitably impact their overall financial performance. The agency anticipates that revenue growth for these companies will be largely driven by price increases, masking underlying weakness in demand.

Looking Ahead: A Long-Term Trend

CRISIL's outlook suggests that the decline in cigarette sales volume is not a temporary blip but a long-term trend. While the rate of decline might moderate, the fundamental factors driving this shift - rising prices, alternative products, and stricter regulations - are likely to persist. This signals a period of transformation for the Indian cigarette industry, forcing manufacturers to adapt, innovate, and potentially explore new business models to survive in a shrinking market.