Cigarette companies will have to start displaying more graphic pictures on packs from December. They have resisted this move in the past, and when it was last due in December 2010, some of the larger producers shut production. They claimed confusion on how to implement the proposal. The government backtracked, probably not wanting a hit on excise revenue because of lost production.
This year, the government is unlikely to bend to please tobacco companies, but they may not have to, either. Call it luck or lobbying, but the new pictures appear more favourable to cigarette companies. In the earlier format, the pictures for all tobacco products—smoking and non-smoking such as chewing tobacco—were the same, depicting oral cancer. But in the revised version, smoking products will carry different and less daunting set of pictures.
Graphical warnings are a result of the Indian government signing the WHO (World Health Organization) Framework Convention on Tobacco Control, which requires sellers to display pictorial warnings on packets. The intention is to have a more effective way of warning smokers about the dangers of smoking or tobacco consumption.
A WHO bulletin on this subject, dated August 2009, says: “Taken as a whole, the research on pictorial warnings shows that they are: (i) more likely to be noticed than text-only warning labels; (ii) more effective for educating smokers about the health risks of smoking and for increasing smokers’ thoughts about the health risks; and (iii) associated with increased motivation to quit smoking.”
However, the move’s impact in India will be visible only after some years. Even then, it would appear cigarettes and bidis will be less affected compared with other forms of tobacco. Of the four pictures meant for cigarette packs, three show a man with superimposed images of lungs shaded in black to signify lung cancer. Only the fourth one is gruesome, a close-up picture of a person with oral cancer.
For chewing, or other smokeless forms of tobacco, all four options are close-ups of persons with oral cancer and are gruesome.
Non-cigarette tobacco consumption is a large market in India. Cigarettes account for only 15% of the total tobacco consumption in India, says ITC Ltd, with the rest accounted for by bidis and chewing tobacco. It claims cigarettes bear an unfair share of the tax burden imposed on the tobacco industry, however.
Cigarette companies successfully overcame the 17% increase in excise tax in fiscal 2011 (FY11), and faced no hike for the current fiscal. They are more worried about states hiking value added taxes on cigarettes to boost revenue. Companies hiked prices in FY11 to recover higher taxes and improve margins. Volume growth appeared to decelerate during the year, though value growth and new products compensated.
In FY12, growth may return to normal as price increases will flow to profits since excise duty remains constant. ITC, VST Industries Ltd and Godfrey Philips India Ltd have had a good run in FY11 in terms of performance, and even on the stock price front. The outlook for the current fiscal, too, looks positive, as things stand.
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