Economy-wide impact of a reduction in tobacco use in India

Public policy measures aimed at regulating tobacco use should consider the net gains for the nation, as the tobacco sector contributes to employment and tax revenue while also imposing substantial economic burden on the country. This study investigates the economy-wide impact of reducing tobacco consumption in India through the implementation of fiscal measures.

The study uses a computable general equilibrium model based on the Global Trade Analysis Project model and database and augments the same with several country-specific information on tobacco products, to examine the macroeconomic impact of a targeted reduction in the consumption of bidis, cigarettes and smokeless tobacco by 10% by the year 2026 through the adoption of fiscal measures.

The model results suggest that the targeted reduction in consumption may result in a 0.14% reduction in the gross domestic product (GDP) and a 0.44% reduction in overall employment in the economy. However, after accounting for the averted premature deaths due to tobacco use, the results indicate a net 0.22% increase in GDP and a net increase in employment of about 1.36 million jobs (or 0.29% of the labour force) over 5 years. Further, the tax increase measures proposed in this model to achieve the targeted reduction in consumption would generate an additional US$2774 million in revenues to the exchequer.

The impact of targeted prevalence reduction of tobacco use is a win-win for the country considering its positive macroeconomic impacts in terms of net increases in both GDP as well as employment.