Shrey Madaan, Indian Policy Associate, Consumer Choice Center
India has spent years taxing tobacco harder while ignoring how smokers actually behave. Every hike follows the same script: prices rise, legal sales suffer, and illicit markets grow. The latest excise increase is being sold as reform, but it risks repeating the same mistake, confusing higher taxes with effective public health policy.
At first glance, the government’s argument sounds technical rather than moral. Tobacco became cheaper in real terms as incomes rose, while the GST compensation cess remained stagnant. The solution, officials argue, is to restore deterrence through higher excise duties. But this framing ignores a fundamental reality of India’s tobacco market: consumers don’t disappear when prices rise; they substitute, evade, or go informal.
India’s experience already shows the limits of tax-driven behaviour change. Over the past decade, cigarette taxes have increased repeatedly, yet affordability has remained relatively stable because income growth has kept pace. When legal cigarettes become more expensive, demand doesn’t collapse; it migrates. Smokers switch to bidis, chewing tobacco, or unregulated products that are cheaper, easier to access, and often more harmful. This isn’t theory; it’s observable market behaviour.
The unintended consequences don’t stop there. Abrupt tax hikes disproportionately affect the weakest links in the legal supply chain. Small retailers, hawkers, and pavement vendors operate on thin margins and daily cash flow. When prices jump overnight, demand at the counter drops, inventory costs rise, and compliance becomes more challenging. At the same time, illicit suppliers step in with cheaper, untaxed alternatives. A policy intended to discourage consumption ends up criminalizing informal livelihoods while strengthening illegal networks.
Supporters of higher tobacco taxes often argue that taxation preserves choice while correcting for social costs. That argument collapses in India’s policy context. Choice is already distorted. Safer nicotine alternatives remain banned, leaving adult consumers with fewer legal pathways to switch away from smoking. In practice, higher taxes don’t steer behaviour toward better options; they push it toward cheaper and riskier ones.
This is why repeated tax hikes feel less like reform and more like fiscal reflex. If taxation alone worked, the government wouldn’t need to recalibrate it every few years. Instead, each increase becomes an admission that the previous one failed to deliver lasting outcomes. The persistence of high tobacco use despite rising taxes is not a sign that rates are too low; it’s evidence that taxation is a blunt tool in a complex market.
A consumer-focused approach would start from a different premise: people respond to incentives, access, and alternatives, not just penalties. When legal products become unaffordable or unavailable, markets don’t correct themselves; they fragment. The success of public health policy depends not on how hard the state pushes, but on how realistically it understands consumer behaviour.
None of this is a valid excuse for ignoring the health risks of tobacco. Those risks are very real at a personal and societal level. But piling taxes onto a system riddled with informality, substitution, and enforcement only distributes the cost unevenly. The burden falls on consumers and small retailers, while illicit operators step in to fill the gap.
India doesn’t need another tax shock masquerading as reform. It needs policy coherence. That means recognising that affordability is shaped by incomes, that demand shifts rather than vanishes, and that enforcement-heavy solutions often backfire in large informal economies. Above all, it means acknowledging that durable public health outcomes stem from expanding legal and regulated choices, not shrinking them.
If the goal is fewer smokers and less harm, taxation cannot be the only lever, and it certainly shouldn’t be the loudest one. Otherwise, the cycle will continue: higher taxes, higher evasion, and the same problems, just priced differently.
