New Delhi: The Narendra Modi government Wednesday announced a complete ban on e-cigarettes, citing the risk they posed to India’s youth.
However, it is a little known fact that the Union government is a shareholder in the largest domestic manufacturer of conventional cigarettes, which have been proven to cause cancer and other ailments. This makes India’s government perhaps the only one in the world with a stake in a cigarette company, and raises questions about a potential conflict of interest in the ban on e-cigarettes.
The government and state-owned companies together held a 28.64 per cent stake in ITC as of June end.
The Centre on its own had a 7.96 per cent stake through the Specified Undertaking of the Unit Trust of India (SUUTI), the administrator that manages the funds of the erstwhile Unit Trust of India (UTI) on behalf of the government. In addition, many state-owned insurance companies are also shareholders in ITC, with the Life Insurance Corporation (LIC) owning the largest chunk at 16.3 per cent as of June end.
The General Insurance Corporation, meanwhile, has a 1.73 per cent stake, the New India Assurance Company 1.52 per cent, and the Oriental Insurance Company, 1.11 per cent.
ITC draws as much as 80 per cent of its profits from cigarettes, sold under popular brands like Classic, Goldflake, Capstan and Navy Cut.
The government’s ban on e-cigarettes, announced late Wednesday afternoon, saw stocks of cigarette manufacturers zooming in the closing hour of trade.
While ITC’s stock ended 1.03 per cent higher at Rs 239.6 on the BSE, tobacco companies Godfrey Phillips India Ltd and Golden Tobacco saw their stocks close at Rs 990.95 (rise of 5.55 per cent) and Rs 31 (rise 3.85 per cent), respectively.
Not the first ban
Several health agencies around the world have voiced concern about e-cigarettes in the absence of data on their long-term impact, and India is far from the first country to ban them. However, the government’s stake in ITC has led many to question the ban.
“The government cited health concerns… while banning e-cigarettes. Ideally, the government should apply the same logic and ban traditional cigarettes also,” said J.N. Gupta, co-founder of Stakeholders Empowerment Services, an advisory services firm.
“The fact that the government holds a stake in ITC is against the Constitution, which clearly states that the state should discourage the consumption of intoxicants,” he added, “When you hold a stake in the company that manufactures cigarettes, you are not reducing consumption of cigarettes.”
Association of Vapers India (AVI), an organisation that represents e-cigarette users across the country, said it was a “black day” for “11 crore smokers in India who have been deprived of safer options”.
It added that the government was more interested in protecting the cigarette industry than improving public health.
“From the start, the government has not been considerate about public health or public welfare, backing biased scientific evidence which has been rebutted by scientists from across the world for cherry-picking and misinterpreting research to target Electronic Nicotine Delivery Systems (ENDS, e-cigarettes),” AVI director Samrat Chowdhary said in a statement.
“What appears to matter more to the government is protecting its 28 per cent stake in the country’s cigarette monopoly ITC. So hellbent was the government on a ban that it also banned any research into ENDS so that the facts about their relative safety (as compared) to smoking could be subdued.”
Praveen Rikhy, the convener of TRENDS, a body of trade representatives involved in ENDS, said the government’s decision was “ironic and erratic”.
“…A safer alternative to smoking is sought to be banned while the more dangerous product will continue to be sold,” he added.
He said the government had used “selective scientific and medical opinion” to justify its decision and claimed it was done unilaterally, without any stakeholder meeting, hinting at the influence of the powerful tobacco lobby.
The government’s decision to ban e-cigarettes while leaving out traditional cigarettes even saw a member of the Prime Minister’s Economic advisory council questioning the rationale of such a move. Shamika Ravi said the move made no health or fiscal sense, and pointed out that the government could have levied a higher tax rather than banning the product.
“Why ban when you can tax (heavily)? Banning #ecigarettes while keeping tobacco products is bizarre. Neither health nor fiscal grounds for this decision, so what’s the logic?” Shamika posted on Twitter.
— Shamika Ravi (@ShamikaRavi) September 18, 2019
ITC & the government
ITC has been battling a hostile takeover bid from the London-based British American Tobacco (BAT) for more than two decades.
The tussle between BAT and ITC started in the 1990s when the former tried to wrest control of ITC.
ITC, then led by chairman Krishan Lal Chugh, managed to foil the takeover bid with help from financial institutions like UTI, IDBI and ICICI.
Chugh is believed to have got the government-controlled financial institutions to increase their representation on the board to foil the BAT’s attempts to remove him from the helm.
His successor, Y.C. Deveshwar, managed to keep BAT’s attempts at bay and successfully steered the company’s diversification to make it a consumer goods conglomerate.