E-cigarette ban: Govt records notional gain of around Rs 1,000 crore

The decision to ban the manufacture and sale of e-cigarettes and other electronic nicotine devices across the country had a direct beneficiary Wednesday — the Government of India.

The reason is that the Centre holds stake, directly and through government-held entities, in at least two of the listed companies with exposure to the tobacco business — ITC Ltd and VST Industries Ltd.

As share prices of most of the tobacco firms witnessed a surge after the Cabinet decision, since these companies are seen to gain the most from the move, the government recorded notional gains of around Rs 1,000 crore over the course of Wednesday’s trade.

Share prices of some tobacco firms listed on the Bombay Stock Exchange (BSE) rose as much as 9 per cent intra-day Wednesday.

This includes even Godfrey Phillips India, which has its own portfolio of e-cigarettes for the Indian market.

For instance, share prices of ITC Ltd, in which the government and its entities own 28.64 per cent stake, rose 1.03 per cent, or Rs 2.45 apiece, to close at Rs 239.60 apiece Wednesday.

While it holds 7.96 per cent stake in ITC through the Specified Undertaking of Unit Trust of India (SUUTI), state-owned insurer LIC holds 16.32 per cent stake in the company.

General insurer GIC, New India Insurance and Oriental Insurance own an aggregate of 4.36 per cent in the company. The notional gain for these state-owned firms put together on Wednesday works out to around Rs 859 crore.

Similarly, share prices of VST Industries rose Rs 58.15 apiece to close at Rs 3,560 apiece. Given that New India Assurance Company holds around 1.53 per cent stake in VST, the share movement translated into a notional gain of Rs 137.07 crore for state-owned New India Assurance.

Government’s reasoning behind the ban

The Health Ministry and Central Drugs Standards Control Organisation, India’s drug regulatory authority, had attempted in the past to ban the import and sale of these products citing public health concerns. Before the ordinance was announced, the government had been facing hurdles in the form of court cases against the move, as ENDS were not declared as ‘drugs’ in the country’s drug regulations.

According to Health Ministry, these products have neither been assessed for safety in the national population, nor been approved under provisions of the Drugs and Cosmetics Act, 1940. Yet, they have been widely available to consumers, one of them had said. Though some smokers have claimed to have cut down smoking while using ENDS, the total nicotine consumption seemed to remain “unchanged”, according to the government.

So, traditional tobacco products are safer?

Traditional tobacco products like cigarettes and chewing tobacco are already known to be harmful. According to the CDC in the US, cigarette smoking harms “nearly every organ of the body, causes many diseases, and reduces the health of smokers in general”.

A study published in The Lancet found tobacco use was the “leading” risk factor for cancers in India in 2016. ICMR estimates that India is likely to face over 17 lakh new cancer cases and over eight lakh deaths by 2020. In 2018, India had nearly 27 crore tobacco users and a “substantial” number of people exposed to second-hand smoke, putting them at an increased risk for cardiovascular diseases, according to a fact sheet by the World Health Organization. Tobacco kills over 1 million people each year, contributing to 9.5 per cent of all deaths, it said.

Adding to economic slowdown?

India’s vapour products market was nascent, but expected to experience rapid growth. It was valued at over $15 million in 2017, according to analyst reports, and projected to grow nearly 60 per cent a year up to 2022. A recent study by Prescient and Strategic Intelligence showed that India’s e-cigarette market was expected to reach $45.3 million by 2024, growing at a Compound Annual Growth Rate of 26.4 per cent.