Reducing tobacco consumption in India: Economic benefits despite short-term challenges

A recent study published in Tobacco Control[1] examines the economic consequences of reducing tobacco consumption in India, with a particular focus on the effects of increasing taxes on tobacco products. The researchers examined potential impacts on gross domestic product (GDP), employment, and public health.

An ambitious plan to reduce tobacco consumption

India, one of the world's largest tobacco-consuming countries, aims to significantly reduce tobacco use by 2026 by increasing taxes on cigarettes, bidis, and smokeless tobacco. The goal is to reduce consumption of each product by 10% by 2026, which could have significant public health impacts, as well as significant economic consequences.

Negative short-term effects more than offset by longer-term benefits

The study results show that in the short term, reducing tobacco consumption would lead to a 0.14 per cent decline in GDP, as well as a 0.44 per cent decline in total employment, mainly due to the decline in the production and sale of tobacco products. The tobacco sector still provides a source of income for many workers in India, and this decline is therefore seen as an immediate consequence of the tax increase.

However, in the longer term, over 5 years and beyond, the researchers estimate that the benefits of reduced premature deaths and reduced smoking-related diseases would more than offset the initial losses. Indeed, reduced mortality would lead to increased productivity, contributing a net increase of 0.22 % to GDP. At the same time, employment could increase overall, with approximately 1.36 million new jobs created in the five years following the implementation of anti-smoking measures.

Tax benefits

Raising taxes on tobacco products could generate significant tax revenues, estimated at $2.77 billion. These funds could be reinvested in health, education or other economic programs, helping to improve public infrastructure and social services.

This redistribution of income would be important to help retrain farmers and other workers affected by the decline in the tobacco sector. About 2.06 million jobs could be lost in sectors related to tobacco production and sale. However, the study emphasizes that resources, whether agricultural land or labor, could be redirected to alternative sectors that are economically viable and strengthen the Indian economy.

Improving public health

Beyond the economic implications, reducing tobacco consumption would have positive effects on public health in India. Health costs related to tobacco-related diseases, such as cancer, respiratory and cardiovascular diseases, could decrease significantly, thereby reducing the pressure on the health system. These indirect savings would further enhance the positive impact on GDP.

The study concludes that while tobacco control measures, such as tax increases, may present short-term challenges in terms of GDP and employment for a country like India with a large tobacco sector, the benefits over the next 5 years and in the longer term are much greater. These measures would improve public health and contribute to economic growth and a better distribution of jobs. According to the authors, a tobacco control policy can contribute to a more sustainable economy.

©Generation Without Tobacco

RK

[1]John RM, Narayanan B, Chakravarthy S, et al, Economy-wide impact of a reduction in tobacco use in India Tobacco Control, Published Online First: 27 September 2024. doi: 10.1136/tc-2023-058471  https://tobaccocontrol.bmj.com/content/early/2024/09/27/tc-2023-058471 (accessed 09/30/2024)