The Economics of PUFF

A blanket ban was enforced on production, import, sales, distribution, and advertisement related to Electronic Nicotine Delivery System (ENDS) or e-cigarettes by Government of India on 18th September 2019. To substantiate the move the government had a strong reason for preventing youth to adapt e-cigarette (vaping) as an alternative. Vaping which involves inhaling a mix of liquid nicotine, solvent and flavour are actually considered as an alternative to quitting smoking. However, the health ministry has its own claim, “the ban is on public interest to ensure vaping does not become an epidemic among youths”.

The numbers prove the claim; vapers are on the rise from 7 million in the year 2011 to 41 million in 2018. The estimated market value of ENDS in India is of Rs 15 crores. Vaping is majorly preferred by minors and youths because of available flavours and no foul smell and smoke associated with tobacco cigarettes. Each e-cartridge contains 200-400 puffs which are equivalent to burn 3 packs of a tobacco cigarette.

The surging numbers of smokers make this market more lucrative for tobacco and vaping products. India has 120 million adult smokers, stands second only to China. As per a World Health Organization (WHO) report, 12% of the world smokers are in India and more than 1 million die every year due to tobacco-related illnesses. Around 38% are exposing to the risk of passive smoking. Alarmingly, 28.62% of those who are affected are in the 15 plus age group and 14.6% are in the age group of 13-15 years.

So why the government wants to ban ENDS when it actually considered as an alternative to quit smoking? Though the health aspect of vaping is a global concern what is the economical aspect? India is a 2nd largest tobacco producer and 3rd largest exporter in the world. The industry provides employment to 46 million people. Even though the cigarette tobacco holds a small share of 8% of the total, one single firm dominates the market with a lion share of 85% of its sales – ITC Ltd., followed by Godfrey Phillips India Ltd, Golden Tobacco Ltd and others. The shares prices plunge high 1.8, 7.8 and 4.5 percentages respectively after the announcement of the ban. The government and other state-owned firms’ holds over 28.6% stake in ITC Ltd.

The tobacco industry is the biggest cash cow for the government since years considering the consumption tax ratio of smoked tobacco. The legal cigarette accounts only 10% of consumption whereas 86% of tax revenue. This simply means a ban on regular cigarettes would flush out a major source of revenue generates in government exchequer.

As the ENDS market is in a very primitive stage in India, more research is required to understand its effects on the human body. By enforcing a ban on e-cigarettes the government has closed an alternative and increases the consumer reliance on the proven danger of tobacco consumption.