E-Cigarette Ban: The ‘Real’ Explanation for Govt’s ‘Duplicity’

How can govt allow sale of cigs, ‘biris’ while banning e-cigs? The answer lies in the economics of tobacco industry.

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The Prohibition of Electronic Cigarettes Ordinance, among other things, provides for imprisonment of up to one year and/or fines up to Rs 1 lakh for the first offence, imprisonment of up to three years, and a fine up to Rs 5 lakh for a subsequent offence.

The exhortation to those possessing Electronic Nicotine Delivery Systems (ENDS) to forthwith handover their stock of e-cigarettes or ENDS to the nearest police station — at the pain of being hauled over coals by the ordinance — has resulted in a frenzied activity on the part of e-commerce giants Flipkart and Amazon, so as to be seen on the right side of the law.

Answer Lies in Economics of Indian Tobacco Industry

The Indian policymakers’ duplicity or hypocrisy however, has come in for severe criticism — how can the government allow the sale of cigarettes, biris and chewing tobacco products to go on unhindered — while banning ENDS? The answer lies in the economics of the Indian tobacco and tendu leaves industries.

In its latest study on the economic aspect of tobacco, Assocham — one of the apex trade associations of India — has found that the sector contributes a whopping Rs 11,79,498 crore to the Indian economy in terms of GDP, and employs an estimated 4.57 crore people.

It provides enormous employment opportunities to farmers and farm labourers, with its capacity to grow even on infertile soil. It contributes significantly to foreign exchange earnings of the nation with export revenue of about Rs 6,000 crore. It also keeps the governmental coffers ringing happily, with huge Rs 40,000 crore tax revenue for it.

Small wonder, the share market reacted positively to the ban on ENDS, with ITC and VST Industries registering a sharp appreciation. It has given a boost to the local industry, given the fact that the supply of ENDS thus far in India, has been sustained by imports. On the flip side, therefore, the ordinance has given a body blow to plans of companies such as Philip Morris International and Juul Labs, to sell e-cigarettes products in India.

Tobacco Dilemma: Health Warnings vs Outright Bans

In light of the above economic data, one can appreciate the government’s ‘duplicity’ while still being critical of it. In India, the policy wonks long ago settled for health warnings instead of outright bans on potentially harmful products. High taxes, making the prices prohibitively high, have also been a strategy used to deter consumption of tobacco products. Cigarette has been the favorite whipping boy of successive finance ministers at the Center, and liquor of the finance ministers in states, given the fact that taxation of liquor is reserved exclusively for states.

It is true that bans result in pushing the products underground, with smuggling from abroad thriving.

What baffles the discerning is why the same logic has not been applied to ENDS. After all, even in the US, where e-cigarettes consumption is fairly high and much larger than in India, there have been just seven deaths reported thanks to their consumption. Which is why the act of swatting the fly with a sledgehammer by the Indian authorities, has raised eyebrows.

According to WHO, tobacco causes over 10 million deaths annually in India. In the US, the figure stands at 4, 80,000.

The health ministry in India ought to be more concerned about the ill-effects of tobacco products. To be sure, it should have also simultaneously started warning the nation against the potentially deadly effects of vaping. But outright ban on it, even while continuing to go soft on arguably the more deleterious tobacco products, smacks of duplicity. But then again, it is the economy, stupid.

(S. Murlidharan is a Chartered Account, and has also written extensively for The Hindu Business Line between 1996 through 2013, and later started contributing regularly to Firstpost on a range of issues like business, economic, tax. He is currently based in Chennai. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)