With its cigarettes business witnessing a subdued December quarter due to demonetization and strict regulations, ITC has lashed out at the large graphic warning requirement on the packets saying there is no evidence that smoking would cause diseases depicted in the “extremely gruesome and unreasonable” pictures.
“The performance of the cigarettes business during the quarter was subdued on account of tight liquidity conditions prevailing in the market and continued regulatory and taxation pressures on the legal cigarette industry in India,” ITC said in a regulatory filing.
During the third quarter of the current fiscal, the company’s cigarettes segment had posted revenue of Rs 8,287.97 crore, as against Rs 8,106.31 crore in the year-ago period, up 2.24%.
The Kolkata-based firm said the operating environment for the legal cigarette industry was “rendered even more challenging in the wake of a further increase of 10% in excise duty announced in Union Budget 2016 and introduction of the new 85% graphic health warnings (GHW) on cigarette packages”.
Hitting out at the new graphic pictorial rule, it said: “The proposed GHW is excessively large, extremely gruesome and unreasonable. There is no evidence to suggest that cigarette smoking would cause diseases depicted in the pictures or that larger GHW will lead to reduction in consumption.” On May 4, 2016 Supreme Court had asked Karnataka High Court to hear and dispose of legal challenge to GHW pending in several HCs while also ordering that any stay order given by any HC will not be given effect to till the cases are finally disposed of.
“Hearings on the matter are currently underway,” ITC said, adding that it was currently manufacturing cigarettes “with 85% warning in compliance with the interim requirements pending final decision by Karnataka High Court on the matter”.
ITC said the global average size for GHW is only about 30% of the principal display area.
“Moreover, the top three cigarette consuming countries — USA, China and Japan which together account for 51% of global cigarette consumption have only text based warning and not adopted pictorial/graphic health warnings,” it added.
Citing an independent study, ITC said: “India is now the 4th largest market for illegal cigarettes in the world. In fact, illegal trade comprising smuggled foreign and domestically manufactured tax-evaded cigarettes is estimated to constitute one-fifth of the overall cigarette industry in India and is estimated to cost the exchequer a revenue loss of more than Rs 9,000 crore per annum.”
The new GHW will encourage the flow of illegal trade of brands owned by international companies into the country since such brands are manufactured in many jurisdictions which do not mandate the printing of graphic health warnings on cigarette packages as applicable in India, it added.
The company said legal cigarette industry in India will be hard pressed “to counter the menace of illegal cigarettes as they will be perceived by the consumer to be safer in the absence of the statutorily mandated health warnings”.
“Coupled with the fact that illegal cigarettes are available at a fraction of the price of legal cigarettes, the new GHW will provide further fillip to the growth of illegal cigarettes in the country,” ITC said.