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Directors
Report
DIRECTORS' REPORT
DIRECTORS' REPORT & Management Discussion and Analysis
CIGARETTE INDUSTRY IN INDIA AND ITS POTENTIAL
Your Directors have pleasure in submitting their Annual Report and Accounts of the
The domestic cigarette industry witnessed one of the sharpest declines in the sales
Company for the year ended 31st March, 2002.
volume in the last year when it lost more than 12% of its size as a result of steep
hike in the rate of excise duty, as much as 15% across all segments. In addition,
GENERAL ECONOMIC ENVIRONMENT
ertain State Governments increased local levies such as luxury tax, entry tax and
octroi tax on cigarettes. As a result, the industry was left with no choice but to raise
On the macro economic front, the country witnessed one of the lowest growths in the
prices of most of their brands.
manufacturing sector in the last several years. Against a targeted growth of 6.5%
the country registered a GDP growth of only 5.4%, though in comparison with other
The sharp increase in cigarette prices triggered an unprecedented supply of cheap
economies it was reasonably satisfactory. The events of terrorist attacks in the USA
smuggled cigarettes in abundance from neighboring countries. Most of them were
and India on September 11 and December 13, 2001 respectively, impacted the
in king size filter format selling in the market for Rs. 5 to Rs. 10 for a packet of 10
global as well as Indian economy to slide down considerably. The tension on the
ndian border resulted in restrictions on travel being imposed by most developed
cigarettes while domestic excise duty alone works out to Rs. 14.50 for a pack of 10
sticks. Since the smuggled cigarettes offer very high margin for traders, there is a
economies and that worsened the situation for the Indian economy which is still
natural inducement for them to push these products. Your company has taken a
continuing to suffer from its effects. On top of that, currently the country is facing one
number of steps on its own as well as along with other companies and enforcement
of the worst drought situations in the last decade. The comfortable level of stocks in
agencies to curb the menace of smuggled cigarettes.
our granaries will, however, safeguard the country from any shortages on the food
front. The year 2001-02 another in succession, witnessed a general slow down in the
India is the second largest producer of tobacco, yet our share in the international
economy and fall in consumer spending. A large number of popular brands in the
trade continues to be less than 1%. A pragmatic and sensible approach towards
fast moving consumer goods category lost their respective market shares.
tobacco will not only help the country to accelerate its export earnings but can also
help raise revenue and earnings of millions of farmers.
Having embarked on economic reforms and globalisation of the Indian economy for
more than a decade now, investments in infrastructure as well as reforms in the
Cigarettes is the most preferred form of tobacco consumption all over the World
agriculture sector continue to be delayed and highly deficient. Inaction on the part
except in India. India is the third largest tobacco consuming country. Yet the share of
of the Government in accelerating the process of the reforms has started affecting
cigarettes in the total consumption has been declining year after year and has gone
growth in both manufacturing as well as agriculture sectors. The lack of long term
down to a mere 16% as against an average of 90% in the rest of the World. The
perspective and stable and transparent policies of the Government has also resulted
prohibitive and excessive taxation on cigarettes is compelling the consumer to
in both Indian as well as overseas investors shying away. This has also resulted in
downgrade to other cheaper and inferior tobacco products. This is also discouraging
stagnating average per capita income of the Indian people. We have, however, been
able to contain inflation. Ours is primarily an agrarian economy. We need to
he farmers of flue cured tobacco from making any investment in improving
accelerate the process of agricultural reforms and investments in the rural
productivity and technological development. It may be worthwhile to note here that
he per hectare earnings of farmers from flue cured tobacco is almost twice that of
infrastructure. We also have to adequately support immediately all the agro based
what he can earn by growing other types of tobaccos. This indifferent and impractical
industries on a continuing basis
approach of the Government has also affected the growth and earnings of the
domestic cigarette industry. The lack of clarity and absence of any durable policy of
Net Worth* (Rs in lacs)
the Government for this sector has also discouraged the Indian industry from
making any investments in developing the export market, which you will appreciate
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is highly competitive and dominated by major global corporations. With the capacity
and skill available within the industry, we are confident that Indian companies can
gain a respectable share in international trade and enhance the country's export
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earnings manifold with the desired support from the Government. Brazil and China
are classic examples as they have achieved a significant presence in the globa
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market with their consistent efforts in that direction. The Government must focus its
attention urgently to the need of the industry by providing an environment in which
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it can adequately grow and face global competition within and outside the country.
There is an imminent need to rationalize the tax structure whereby the wide
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differential in the taxation of various tobacco products inter-se is gradually reduced
and the States are discouraged from levying tax on cigarettes indiscriminately
.. ...'
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and differentially. This can be resolved by having a single point of taxation in a
harmonized tax structure across the country.
- . .
1997-98
1998-99
1999-2000
2000-2001
2001-2002
TECHNICAL DEVELOPMENT AND ASSISTANCE TO FARMERS
* Excluding Revaluation Reserve
Having identified the potential of tobacco in India, your company has been making
investments in modernizing its manufacturing facilities and development of new
varieties of cigarette products. We also voluntarily started imparting training and
providing technology to the farmers of flue cured tobaccos in Andhra and
Karnataka to help them improve their yields, grow right varieties of tobacco and
follow superior farming practices including grading and packing of tobacco. The
Source: https://www.industrydocuments.ucsf.edu/docs/yrgj0223

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