Puffs to get pricey soon

Cigarette manufacturers in the country have finally decided to bite the bullet by implementing a price hike in the range of four to 12 per cent on their products following the finance minister's budgetary proposal to increase the specific rate on cigarettes by 10 per cent.

However, a spokesperson of the country's largest cigarette maker, ITC, refused to confirm the price hike although retailers and distributors have already begun selling several of its popular brands such as Gold Flake and Navy Cut at the revised prices.

The new lot of cigarettes too bear the new prices on the packaging. Under the new pricing, a pack of Gold Flake would now cost Rs 29.50, up from Rs 28 earlier, and Navy Cut would retail at Rs 25 up from Rs 23.

The K K Modi promoted Godfrey Phillips India too has effected a 50 Paise hike on three of its brands, Red and White, North Pole and Cavenders.

Speaking about the decision to increase prices, a GPI spokesperson said, "Even with this price hike, we will not be able to fully absorb the impact of increase in duties. We may also look at revising the prices of our high-end brands."

According to GPI, the decision to increase prices was a difficult one as coinage and individual cigarette stick pricing becomes complicated.

"When retailers sell individual sticks, it becomes difficult to pass on a Re 1 price hike to the end consumer," he further added.

Already retailers are unhappy with the marginal increase in prices as they make an additional margin by selling individual sticks from a packet of cigarettes at a higher price. For instance, sticks from a pack with an MRP of Rs 28 is sold by the the retailers for Rs 3.

It is estimated that the 10 per cent surcharge would translate into an additional expenditure of Rs 700-800 crore for the Rs 15,000 crore tobacco industry.

According to industry sources, ITC would be the worst affected as the company has a more than 80 per cent of the marketshare and its bestselling brands Navy Cut and Gold Flake alone account for nearly Rs 4,500 crore of sales.

The FM had proposed to allocate the money collected through the surcharge to fund the National Rural Health Mission.

Cigarette firms had contended that the omission of bidis and increase in specific rates was inexplicable as cigarettes account for just 14 per cent of the entire smoking tobacco market.

"As a punitive tax, it won't achieve the government's health objectives because consumers will switch to cheaper alternatives like bidis which are more harmful," the GPI spokesperson added.

Smoke rising

• ITC's Gold Flake would now cost Rs 29.50, up from Rs 28 earlier
• Navy Cut would be sold at Rs 25, up from Rs 23
• Godfrey Phillips to up prices of Red & White, North Pole and Cavenders by 50 paise