Tobacco Market in India Lots of smoke and fire ahead:

According to the Datamonitors latest Market Insights report: Tobacco in India, In 2009, the Indian tobacco market was estimated to be worth around INR 58,730 crores, recording a CAGR of 8.5% during 200409. The market is expected to rise in value steadily during 200914 at a CAGR of around 6.9%, and is forecasted to be worth INR 81,790 crores by 2014. Smoking Demographics: Smoking in India has a unique spread in terms of the various forms it is consumed and has immense potential to grow, although the per-capita consumption of tobacco is relatively low compared to other regions in the world. While the overall tobacco market is dominated by chewing tobacco and noncigarette products such as bidis, which are widely consumed in the rural areas, cigarettes are preferred more in urban India. Reasons for initiation vary widely within the country. Women in rural areas cite tooth related complaints as a reason for starting chewing tobacco whereas for young adults in the cities, peer pressure is the major reason for kick-starting the smoking habit. Education levels also play an important role in tobacco consumption. With the increase in education level, the proportion of the population segment with tobacco use decreases. Further, the chances of a higher educated consumer quitting the habit are much higher compared to a consumer with low education levels. Recently a Global Adult Tobacco Survey India, was conducted across urban and rural regions of 29 states in India to understand the tobacco consumption trends in the country. The following were the results observed in the Indian scenario: Education Secondary education and higher Primary education Less than primary No formal schooling Proportion of tobacco users (%) 21% 33% 45% 44%

As per the Datamonitors latest Market Insights report: Tobacco in India report, The Global Youth Tobacco Survey found that 1.4% of city kids in India smoked and 2.8% consumed chewing tobacco. However, as per the more recent 2010 survey mentioned above, 0.8% of the surveyed youngsters (in the age group of 1315) smoke, while 6.4% chew tobacco. This means that the percentage of teenagers who smoke tobacco has decreased, while the percentage of those who chew tobacco has more than doubled. The survey has also revealed that there has been an increase in the number of girls who consume tobacco. While a decade ago, 3.8% of boys and 1.4% of girls chewed tobacco, these percentages have gone up to 7.3% and 4.4% respectively in 2010. The children surveyed were from 26 private and government-aided schools. With increasing disposable income levels amongst the younger consumers, the percentage of this population segment taking up smoking has been on a huge rise for the past few years. Reasons such as

the new found economic independence and peer pressure are the major drivers for this trend amongst this consumer segment. Youngsters also derive inspiration from smoking by popular icons such as movie stars etc. for their smoking habits, although there have been quite a few restrictions on this front recently. In the rural areas, consumption of tobacco is mainly through chewing of tobacco (also Gutkha, pan masala) and other non-cigarette forms of tobacco such as bidis (a dried, rectangular piece of the temburni leaf rolled into a conical shape) and chuttas (coarsely prepared cheroots made by rolling a tobacco leaf into a cylindrical shape). Market Structure: The Indian tobacco sector is divided into two sectors organized and unorganized. The cigarette market, which falls under the organized sector of the Indian tobacco industry, is dominated by ITC while Godfrey Philips and Golden Tobacco Ltd are other players in the sector. The unorganized sector, comprised of product categories such as chewing tobacco products, is heavily fragmented with several players involved in the manufacture of these products with no clear leader for the market. According to the Datamonitors latest Market Insights report: Tobacco in India report, the heavy fragmentation of the chewing tobacco market is one of the major reasons that the leading cigarette manufacturers in India are entering the chewing tobacco market

As described in the above chart, chewing tobacco segment remains largely fragmented while the cigarettes segment has a totally opposite scenario with the top five players having an absolute strangle hold of the market. This has to do with the fact that the government has not issued fresh licenses within the past decade and also placed restrictions on FDI (Foreign direct Investment) into the tobacco market, which prohibits the manufacture of cigars, cheroots, cigarillos, and cigarettes, of tobacco or of tobacco substitutes by international manufacturers. This ban, which makes India the only country to go for such a stringent move, has restricted further investments into the Indian tobacco market by international tobacco players. These restrictions also limit the chances for newer players to emerge in the cigarettes sector, although interestingly foreign investment can still be made in the chewing tobacco category. The newly emerging sector of Cigars and Cigarillos, which currently has a low base, has seen an unprecedented growth in the past few years with heavy demand from the affluent consumer segment. The fact that the segment has seen a CAGR of around 24% during the period 2009-14 highlights the growing preference for this segment amongst the select consumer segment. Regulatory Trends: As per the Datamonitors latest Market Insights report: Tobacco in India report, the Indian government has constantly increased the regulation of the Indian tobacco market through taxation and other restrictive measures, in an effort to control the tobacco consumption trend in the country. Recently, the Prohibition of Smoking in Public Places Rules came into effect on October 2, 2008, under which smoking has been banned in public places including work places, shopping malls, cinema halls, health care facilities, educational facilities, and government facilities. However, the implementation of the ban has not been effective at on overall level. Anti-public smoking laws continue to be flouted at various places across the society. Tobacco related products continue to be sold to minor children, especially from the weaker economic strata who consume tobacco products such as bidis and chewing tobacco at a considerable level. The results of the Global Adult Tobacco survey which state that 26% of non-smokers are exposed to second hand smoke at work-places and 30% of adults visiting public places are also exposed to secondary smoke are enough evidences of the fact that the implementation of regulatory norms with regard to public smoking has not been effective in India. Although the government has been creating campaigns through various media such as print-ads, advertisements on television such as the Sponge campaign and also through graphical health warnings on cigarettes and other tobacco related products, awareness levels amongst Indian consumers continue to remain low, especially in the rural regions. Future Trends: According to Datamonitor, the chewing tobacco segment would remain dominant in the Indian market for the next few years as the awareness levels continue to stay low, especially in the rural sector. Although cigarettes are the major product segment in the urban market, it is expected that with new product launches and the increasing demand, high-end products such as cigars and cigarillos will see a massive upsurge in the coming years. Although the government has started steps towards increasing awareness

against the consumption of tobacco, the effects of these restrictions on the future consumption in India remains to be seen. - ENDS
Article by Raghavendra Rao, Consumer Markets Analyst, Datamonitor based on analysis and inputs from Datamonitors latest report Tobacco in India For further information on this title, please contact Aartee Sundheep on +91 40 6672 9586 or asundheep@datamonitor.com.