Want to smoke? Spend more

Pranab Mukherjee,who gave up his smoking pipe years ago,feels that others too deserve encouragement to kick the habit and hence has subjected tobacco products to higher taxation,while exempting toy balloons from central excise duty. “Since I quit smoking many years ago,I would urge others to also follow suit,as smoking is injurious to health. To this end,I am making some structural changes in the excise duty on on cigarettes,cigars and cigarillos coupled with some increase in rates,” he said. In addition,Mukherjee — who had been an avid smoker for many years — proposed to introduce a compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines.

While some experts believe that the increase can be absorbed by the players in the market and hence take a pressure on their margins,there are some who believe a higher increase in excise might have called for a double digit price increase,which could impact volume growth. According to an Anand Rathi Securities report,higher excise duty may result in margin pressure on some companies. However,companies may resort to price hikes with a lag of one or two quarters. Moreover,with the launch of a Re 1 cigarette would improve volume for cigarette companies by converting bidi smokers to cigarette smokers.

ITC,the largest maker of cigarettes in India,seems to have already factored in the speculation. It has increased the price of its popular brand,Gold Flake Kings cigarettes by 7 per cent. According to Edelweiss,the company has taken this decision as a pre-emptive step assuming the government was going to increase the tax burden. “It has been a very steep increase. We are evaluating the impact on our costs and based on that evaluation,we will look at pricing strategies,” said an ITC official.