What Are the New Amendments in the Tobacco Regulation Laws?

A “clean bill of health” is what everyone likes to hear after an annual medical examination. In the current climate of ensuing global pandemic, clean health is not just a relief, but also a guarantee against temporarily forced institutional incarceration.

In an effort to promote healthy habits among the citizens, the Ministry of Health has proposed a draft bill to amend certain rules in the country when it comes to smoking, using and sale of tobacco products, chiefly cigarettes.

The amendments have been called into question by various stakeholders involved in the sale, distribution, supply and commerce of tobacco, as also from legal experts who have pointed out inconsistencies in the law. Although these changes largely originate from the Government’s public health-centric approach and regulated use of prohibited substances, the grievances of sellers and manufacturers are far too prominent and intricate to ignore.

Let’s shed some light on this smokescreen, shall we?

Rules For Smoking In India

The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 (hereinafter referred to as “COTPA”) is the umbrella tobacco legislation in India. Smoking is a predominantly prohibited act in many public places and workplaces such as healthcare, educational, governmental facilities, public transport etc. Here is the gist:

• Smoking areas can be established in indoor spaces (airports, hotels etc.) with 30 or more capacity.
• Outdoor spaces i.e. open auditoriums, stadiums, railway stations, bus stops etc. must also be smoke-free.
• Health warning labels on tobacco packaging must be both pictorial and textual.
• Sale of tobacco products via vending machines is prohibited.
• Production, manufacture, import, export, transport, sale, distribution and advertising of e-cigarettes is banned.
• Sale of tobacco products is prohibited to persons below the age of 18.

Now, the new bill (hereinafter referred to as the “COTPA Amendment”) proposes the following changes:

• Retail sale of loose cigarette sticks is prohibited.
• Sale of tobacco products to persons under the age of 21 to be prohibited.
• Sale of tobacco products within 100 yards to 100 metres of an educational institution to be prohibited.
• Mandatory licensing for retailers subject to annual renewal.
• Shops are required to set up advertising and promotional content in-house indicating the harmful effects of tobacco consumption.

Grievances of Tobacco Retailers and MSME Producers

India ranks third in the world (behind China and Brazil) in terms of tobacco production and export. While most of the tobacco is processed into cigarettes, some are used to make bidis and a few others are also wrapped in tenduleaves (very popular enterprises under the cottage industry). The indigenously-made products are cheap and readily available for consumption taking the national smoking average to c. 29% of the population.

Any adverse change in the tobacco policy significantly impacts the business of manufacturers and retailers (especially in the MSME bracket). Increasing the legal smoking age to 21 is a major bone of contention in light of the preposterous expectation from millions of tapris selling tobacco and gutka across the length and breadth of the country, to vet buyers approaching them on a daily basis (especially in a frugal economic environment such as the present).

There are also staggering reservations against the prohibitory location of tobacco shops, which threatens destabilisation of businesses in heavily congested urban areas. The idea of bringing about a licensing regime is also being held impractical and a precursor to institutionalised corruption and harassment of small shopkeepers.

Above all else, the cognisability (arrest without warrant) of selling loose cigarettes and seven years imprisonment has been touted as the smoking gun (ok this is the last one!) of draconian measures by retailer associations across the country who have now approached the Prime Minister’s Office urging an immediate review and reconsideration of the above proposals.

Impact on Big Producers

Shares of ITC took an approximate 3% dive after the news of the proposed amendment surfaced. This was an abrupt dent in the steady rally of the company (rise of share price by 30%) since November 2020 after recovering from the post-pandemic slowdown due to regained steam in the cigarette and non-cigarette FMCG business.

ITC is the market leader in the organised cigarette market. A company for which 85% of the profits is derived from the cigarette business, the implementation of the COTPA Amendment could present enormous challenges.

However, as per the Economic Times, analysts are of the opinion that the Amendment is an “ambitious” endeavour of the Government with scant possibilities of enforcement. Therefore, the resulting market disruption in stocks of companies with cigarette businesses is momentary and unlikely to impact long-term investor outlook on the stocks. Perhaps, the small businesses could take a leaf out of the above optimism!

Regulatory Gravitas

For all the lack of faith instilled in the goal following-through capabilities of the Government, it surely deserves credit for making India one of the most strictly-regulated tobacco jurisdictions.

Our cigarette taxes (64% excise duty, 28% GST, and 5% cess) are amongst the highest in the world. We were also one of the earliest ratifying countries to the WHO Framework Convention on Tobacco Control, 2003. The Government has left no stone unturned in issuing regulations to control the consumption of tobacco products by:

1. Making ingestion of tobacco prohibitory under the Food Safety & Standards Act, 2006
2. Launching the National Tobacco Control Programme (NTCP) in 2007
3. Establishing Tobacco Cessation Centres to help people quit smoking.

The only countries with stricter smoking regulations (on a comparative matrix) are Costa Rica (blanket ban in public spaces), Malaysia (fine up to $2,500 upon private smoking inside air-conditioned premises) and Uruguay (national campaign to discourage even indoor smoking since 2008). Interestingly, the minimum age of smoking in the traditionally uptight regime of Saudi Arabia is also 18 years!

It remains to be seen how far the Government smokes the peace pipe (oops!) with the retailers by acceding to their requests for reconsideration. Where the issue of public health and safety is imminent, what we have seen from recent world events is that no authoritarian power will go missing in committing to the same cause, however detrimental it be to the cost of the economy.

(Originally published January 11th 2021 in transfin.in)