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Will Tobacco Production Halt in India Affect Volumes?

The tussle between tobacco makers and the government of India has heightened with tobacco makers reportedly deciding to halt production following the implementation of the rule regarding graphic warnings on cigarette packets.

The Indian government, supported by health proponents across the nation, had proposed that health warnings should cover 85% of the packets against the current 20% which became effective from April 1, 2016. The current rule was proposed in 2014 by the Health Ministry.

In India, the ills of tobacco consumption have taken an ugly shape, costing nearly a million lives every year. To address the situation, the government first implemented pictorial warnings in 2009 that had to cover 40% in front of a cigarette pack.

The Youth health advocates have long been urging Indian policymakers to set a date for implementing India’s planned pictorial tobacco health warnings covering 85% on both the sides of all tobacco packets. Approximately, 4,000 letters were submitted to the Ministry of Health last May urging the implementation. A signature campaign was also conducted and nearly 5,000 signatures have been collected to date to back the timely enforcement of the rule.

Last month, a parliamentary committee was reported to support the tobacco industry as it was of the opinion that the proposal to cover 85% of tobacco packets with health warnings is too harsh and should be reduced to 50%. The parliamentary committees are of the opinion that such a measure will hurt tobacco farmers and encourage illicit trade in the country. The government however stuck to its decision.

Tobacco makers like ITC Ltd., VST Industries Ltd. and Godfrey Phillips India Ltd. (where Philip Morris International Inc. PM owns almost 25%) paused manufacturing on April 1, due to confusion over the new requirement. The biggies said that the halt of production will not cause any shortage in the market as they have products in stock. They will cease production until some certainty is reached on the implementation of graphical warnings.

Tobacco companies have been penalized for taking recourse to any kind of advertising or packaging that flout the laws, to boost sales. The global tobacco industry has been facing severe advertising and packaging restrictions on their products for some time.

Meanwhile, governments around the world are imposing restrictions on tobacco makers which, in turn, are lowering cigarette consumption and affecting margins. The plain packaging concept was pioneered by Australia in 2011 (read: Australia Harsher on Smoking). Ireland was the first European country to enact plain packaging. It passed the legislation on Mar 10, 2015, and is expected to come into effect in May 2016.

Anti-tobacco activists commend U.K.’s decision to introduce plain packaging as they believe many countries will follow suit.

The Food and Drug Administration has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to dissuade smokers. The labels have been designed in accordance with the Family Smoking Prevention and Tobacco Control Act and depict disturbing images that highlight the health hazards of smoking.

These rules are posing significant problems for tobacco majors like Philip Morris., Reynolds American Inc. RAI and Altria Group Inc. MO that are already bearing the brunt of anti-smoking campaigns worldwide.

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