Tax hike will severely impact millions of tobacco farmers, warns FAIFA report

A latest report prepared by experts analyses the impact of the new excessive excise duties on the tobacco farming sector.

The Federation of All India Farmer Associations (FAIFA), a non-profit organisation representing the cause of millions of farmers and farmworkers of commercial crops across the states of Andhra Pradesh, Telangana, Karnataka, Gujarat, etc, released the report at a press conference on Wednesday.

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Titled “New Tax Regime on Cigarettes and Its Impact”, and developed by FAIFA and Artha Arbitrage Consulting LLP, the report estimates that the new tax is likely to reduce the offtake of FCV crops by nearly 20 per cent and cause an additional loss of approximately 2.6 million man-days of employment in farming and affiliated activities.

This will be a severe blow to FCV (Flue-Cured Virginia) tobacco cultivators, agricultural labourers including women, and those labourers engaged in warehousing, auctioning, transportation, and other associated activities of tobacco cultivation, at a time when the employment situation in India is already under sharp distress.

Speaking on the occasion Murali Babu, President, FAIFA, said, “More than any other stakeholder, the new tax disproportionately hurts tobacco farmers in India, especially FCV growers in South India. The share of Indian FCV farmers in the overall tobacco market has already fallen sharply, from 21 per cent to 10 per cent, due to punitive and discriminatory taxation and the rapid growth of illegal tobacco. This share will shrink further, leaving FCV growers with an increasingly narrow and unsustainable space to operate.”

“This taxation policy will not reduce consumption; instead, it will push consumers toward cheaper, unregulated, and illegal tobacco products. That undermines public health objectives and further distorts the market. If left
uncorrected, FCV tobacco farmers in South India risk being pushed into permanent marginalisation. We urge the government to urgently address and rectify this anomaly.”

FAIFA’s report further warns that the tax shock would disrupt the tobacco value chain severely, by sharply fuelling the growth of illicit trade. Rising prices are expected to push up demand for illegal tobacco products by nearly 39 per cent, taking total illicit consumption of cigarettes to over 46 billion sticks. This will be a severe blow to the legitimate tobacco growers’ fraternity, besides demolishing the entire industry and destroying livelihoods.

Naveen Srivastav from Artha Arbitrage Consulting LLP, who carried out the research for the report, said, “The FCV tobacco agri-sector is experiencing intensifying structural stress. Even before the new tax regime, products derived from FCV leaf were taxed disproportionately, over 30–50 times higher per kilogram than non-FCV tobacco used in bidis and chewing products, translating to more than Rs 6 per dose compared to less than one paisa for other forms.”

“This persistent tax asymmetry has contributed to a steady contraction in FCV acreage and a decline in the number of growers, as evidenced by data spanning 2011–12 to 2023–24. The latest excise hike is likely to exacerbate this imbalance, accelerating a shift toward revenue-inefficient and informal consumption channels. From a fiscal standpoint, the resulting revenue gains risk being outweighed by the broader economic costs of reduced farm incomes, employment losses, and downstream livelihood impacts,” Srivastav said.