Indian smokers are bracing for a significant hit to their wallets, with cigarette prices poised to rise by up to 20% starting February 1, 2025. This steep increase is a direct consequence of the government's decision to raise the National Calamity Contingent Duty (NCCD) on cigarettes, a move announced in the recent Union Budget and now set to be implemented.
Budget Proposal Triggers Price Surge
The foundation for this price hike was laid during the Union Budget presentation in July 2024. The government proposed an increase in the NCCD on cigarettes, and this proposal has now been officially notified. The duty is levied per thousand sticks and varies based on the length of the cigarettes. According to the notification, the revised rates will come into effect from the start of the next financial year, specifically February 1, 2025.
Industry analysts and brokerages have been quick to assess the impact. A notable report from global brokerage firm Jefferies highlighted that this duty hike could lead to a substantial increase in the maximum retail price (MRP) of cigarettes. They estimate that prices may need to be raised by 10-20% to offset the higher tax burden. This adjustment is necessary for tobacco companies to maintain their profit margins after the government takes a larger share.
Impact on Major Tobacco Players and Market
The duty increase sends a clear signal about the government's continued focus on public health and generating revenue from what it terms "sin goods." The move is part of a long-standing policy to discourage tobacco consumption through fiscal measures. For the tobacco industry, this represents another challenge in a tightly regulated market.
The notification specifies the new duty rates for different cigarette categories. For cigarettes not exceeding 65 mm in length, the NCCD has been raised to ₹2,417 per thousand sticks, up from the previous rate. For cigarettes between 65 mm and 70 mm, the new duty is set at ₹2,841 per thousand. For the longer category, exceeding 70 mm but not 75 mm, the duty is now ₹4,146 per thousand sticks.
This regulatory change has immediate repercussions for leading cigarette manufacturers in India, most notably ITC Limited, which commands a dominant share of the legal cigarette market. Other players like Godfrey Phillips India and VST Industries will also be affected. The stock market reacted to the news, with shares of ITC experiencing volatility as investors digested the implications of the duty hike on the company's future earnings.
Broader Economic and Consumer Consequences
The impending price rise has several layers of consequences. For consumers, it means a direct increase in the cost of smoking, which could potentially lead to reduced consumption or a shift towards cheaper, illicit alternatives—a persistent problem in the Indian tobacco ecosystem. For the government, the hike is a double-edged sword: while it aims to promote healthier lifestyles and raises additional excise revenue, it also risks boosting the black market for cigarettes.
From a fiscal perspective, the increased NCCD contributes to the government's tax kitty, which can be allocated for calamity relief and other contingency expenditures, as the duty's name suggests. However, the final revenue gain will depend on how the price elasticity of demand plays out—whether the higher prices significantly reduce legal sales volumes.
As the February 1, 2025 deadline approaches, retailers and distributors are expected to adjust their pricing. Consumers across India, from major metros to smaller towns, will feel the pinch every time they purchase a pack of cigarettes. This development reaffirms India's stringent stance on tobacco taxation as a tool for public health policy, continuing a trend of annual duty adjustments that keep the industry and its consumers on their toes.
