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Contraband cigarettes flood India

Posted on Dec 27, 07:35PM | IBNS

India is emerging as one of the biggest market for contraband cigarettes, i.e. cigarettes that have been smuggled into the country, according to market research organization Euromonitor. These cigarettes evade the payment of excise, VAT, customs or any other applicable tax and are thus cheaply and attractively priced. As per Euromonitor, the legitimate cigarette industry size, which was at 109 billion sticks in 2006/07, has dropped thereafter to about 101 billion cigarettes in 2010-11.

In contrast, the illegal, duty-evaded cigarette segment has grown to about 20 billion cigarettes, i.e., about 16pc of the industry, having grown by 82pc between 2004 and 2011.

India is, today, the 6th largest illicit cigarettes market in the world, said Euromonitor.

The organisation estimated that illicit cigarette volumes in India will further grow and contribute more than 23pc of the total industry size by 2016.

It said: "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 commissioned by Associated Chamber of Commerce and Industry in India, the size of the contraband cigarettes marketed in India is about Rs. 2000 crore per annum and is threatening 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, the study said.

According to a latest study, 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 World Health Organization (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.

It is also seen that the smuggled cigarettes do not carry the Graphical Health Warnings mandated by 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, the smugglers/agents of the trade make a handsome margin, said the study.

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, said the study.

The huge differences in cigarette prices between India and its neighbouring countries (due to the discriminatory taxes imposed on cigarettes), and the lack of stringent measures to curb large-scale smuggling of cigarettes across borders have emerged as key drivers of the contraband trade.

The smuggling racket operates in two ways. Cigarettes are purchased legally in neighbouring countries but sold illegally (without paying customs duty) in India.

Alternately, there are regular sales of large consignments of cigarettes in the black market without paying any taxes in either the country of manufacture (because they are shown as exports) or the country of sale, i.e. India (because they are smuggled in).

The trade in smuggled cigarettes is thoroughly organized, with a number of well-known hubs and large wholesale markets.

Mumbai's Crawford Bazaar and Delhi's Nal Bazaar are particularly notorious wholesale hubs for smuggled cigarettes, and there are similar hubs in Pune, Hyderabad and Bangalore - the other cities where the trade in contrabands is rampant.

Government interventions such as raids, checks or inspections of these markets or cigarette outlets in general, tend to be sporadic.

The effect of these interventions is temporary at best.

Smuggling activities might decline in the immediate aftermath of local officials' intervention, but within a fortnight the trade in contraband cigarettes usually resumes in full force.

With contrabands flowing through markets as easily as legitimate cigarettes, there would appear to be some complicity between the agents of the smuggled trade and the local administration.

Over time, several smuggled brands have created a large consumer base for themselves and attracting large numbers of youths in the smoking industry.

The relatively low prices of smuggled brands is an attractive proposition for young smokers.

Since the smuggled packs of cigarettes do not follow any statutory requirements,health cost to consumers may be considerable. They do not display statutory health warnings or pictorial warnings; neither do they carry an MRP or show the product's date of manufacture.

The latter point is significant as the consumption of 'expired' cigarettes may pose serious health risks.

Contraband cigarettes are smuggled into India from China, Myanmar, Bangladesh, Indonesia, Pakistan, Gulf , South east Asian countries and even Europe, as per latest data available. They pass through porous borders and are distributed in domestic markets.

Port cities such as Mumbai and Chennai are also significant points of entry.

Additionally, cigarettes are also smuggled into the country in significant quantities by air passengers and sold in the open market.

Another recently discovered channel for contraband cigarettes is the 'door-to-door', an unauthorized courier system widely used by Gulf-based migrant workers to send packages home at less than air-freight rates.

The service is being used to smuggle contraband cigarettes into India in trade quantities.

Globally there are documents and reports, that confirm the nexus between contraband in cigarettes and criminal, anti-social elements.In India, too, there have been speculations about the contraband cigarettes trade being - among other things - a possible source of funds for organized crime and outfits promoting terror.

Clearly, the drive to curb the entry of contraband cigarettes into India needs to be undertaken in a more stringent, sustained and organized manner.

Unless the Government of India takes some concrete long term steps the menace of cigarette smuggling will only get bigger, smoother and lucrative for international smugglers endangering government's revenue, tobacco control objectives, Indian tobacco farmers income and health of Indian youth, said the study.