Chewing tobacco has been a tradition in India for centuries. Of the total amount of tobacco produced in the country, around 48% is in the form of chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India’s total tobacco production. In the rest of the world, production of cigarettes is 90% of total production of tobacco related products.

The per capita consumption of cigarettes in India is merely a tenth of the world average. This unique tobacco consumption pattern is a combination of tradition and more importantly the tax imposed on cigarettes over the last 2 decades. Cigarette smokers pay almost 85% of the total tax revenues generated from tobacco.

The Indian tobacco industry

India is the second largest producer of tobacco in the world after China. It produced 572 m kgs of tobacco in FY03. However, India holds a meager 0.7% share of the US$ 30 bn global trade in tobacco, with cigarettes accounting for 85% of the country’s total tobacco exports.

Despite being the second largest producer, India is only the ninth largest exporter of tobacco and tobacco products in the world. Out of the total tobacco produced in India, only one-third is flue-cured tobacco suitable for cigarette manufacturing. Most of the tobacco produce is suitable for the manufacture of chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country. In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.