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Your Directors have pleasure in submitting their Annual Report and Accounts of the Company for the year
ended 31st March 2003
GENERAL ECONOMIC ENVIRONMENT
Against a forecast GDP growth of 6.7%, India achieved a GDP growth of 4.3%. In the first two quarters the
growth was 5.3% and 5.2%. The growth slowed dramatically in the third quarter due to the poor monsoon.
The rate recovered in the fourth quarter to 4.9% as reported by the National Council of Applied Economic
Research.
Agricultural growth as a consequence of the drought recorded one of the sharpest declines over the last 20
years of 3.2%. Industry recovered in 2002-03 and recorded an overall growth of 5.7%, with manufacturing
marginally better at 6%. The capital goods and consumer non-durables sectors showed growth of 10.6% and
11.9% respectively. Indian exports grew in all major categories despite the strengthening rupee against the
US dollar.
In summary, the Indian economy did reasonably well despite the drought and the uncertainty in global
demand due to the Middle East situation and SARS.
Despite this, future growth depends on a growing agricultural sector. Over 70% of India's population reside in
rural India. Growth in the rural economy is necessary for price stability as well as the profitability of the
manufacturing sector. It is, therefore, essential to commit and implement a package of reforms in the
agriculture sector, along with necessary investments in rural infrastructure.
CIGARETTE INDUSTRY IN INDIA AND ITS POTENTIAL
Heavily regulated environment
While the overall manufacturing industry is witnessing a reasonable growth of 6%, the domestic cigarette
industry operates in an ever increasing regulatory environment that effectively subsidises the non-cigarette
tobacco products at the cost of cigarettes. The significant aspect of this regulation is two fold: firstly,
discriminatory taxation and secondly, discriminatory advertising and marketing restrictions.
Taxation
While cigarettes account for approximately 14% of total tobacco consumption, they account for 85% of total
tobacco excise tax revenues. In addition, the cigarette industry is also liable to pay state taxes such as luxury
and entry taxes, etc. which equate to approximately 10% of the excise tax. The impact of this effective
subsidised taxation on the non-cigarette tobacco products has seen India's consumption of cigarette per capita
sinking below Pakistan, Bangladesh and Nepal to one of the lowest in the world. As a consequence,
consumption on non-cigarette tobacco products including bidis and chewing tobacco has grown to be the
highest in the world!
Source: https://www.industrydocuments.ucsf.edu/docs/znbx0223

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