ANALYST COMMENT

Sumit Chopra

Director of Consumer Market Research at GlobalData, comments:

The Indian tobacco sector is currently grappling with a number of issues that could have a significant impact on market performance.

Although tobacco consumption is high in India, volume sales are still dominated by chewing tobacco and bidis, a small, thin hand-rolled cigarette.

The Indian cigarette market is characterised by extreme price sensitivity and consequently market performance will always depend heavily on the prevailing taxation regime and the general economic climate.

The mainstream tobacco industry is not able to compete with chewing tobacco or bidis on affordability due the high retail price of their cigarettes as a result of the country’s high levels of cigarette taxation.

Despite positive economic growth and the rise in disposable incomes in recent years, mainstream cigarettes still remain well beyond the affordability of most Indian’s. This is probably why the illicit cigarettes trade in India reportedly accounts for more than 20% of all cigarette sales and is still a growing part of the market.

Recent market performance has also been affected by the Government’s recent taxation increase on cigarettes pushing retail prices well above the general rate of inflation and people’s pockets. Further headwinds are provided by recent regulations to restrict cigarette sales through licensed shops, reduce cigarette advertising (including online), ban e-cigarette sales in certain channels together with a proliferation of public health awareness campaigns.

However for Indian smokers mainstream cigarette products still remain highly desirable.

Information based on GlobalData’s Tobacco Sector Insights database.