NEW DELHI, 22 January 2026: A delegation of Flue-Cured Virginia (FCV) tobacco farmers from Andhra Pradesh, Telangana and Karnataka met Union Finance Minister Nirmala Sitharaman on Thursday, urging the government to reconsider the recent tobacco tax hike, which they say could disrupt the regulated tobacco ecosystem and severely affect farmer incomes.
The delegation was led by Smt. Daggubati Purandeswari, Member of Parliament from Rajahmundry, and included Shri Yashwanth Kumar Chidipothu, Chairman of the Tobacco Board, along with representatives of farmer groups.
Concerns over farmer distress and legal trade
Initiating the discussion, Smt. Purandeswari said the sudden increase in taxation could create distress for lakhs of farming families dependent on FCV tobacco cultivation and destabilise the auction-based marketing system.
She warned that reduced legal consumption may shrink government revenues while encouraging illicit trade.
“The sharp hike risks weakening the regulated supply chain, hurting both farmers and national revenues,” she noted, adding that stable demand for low-grade tobacco is essential to sustain farmer incomes, auction stability and overall market confidence.
Impact on auctions and demand
Tobacco Board Chairman Yashwanth Kumar Chidipothu explained that the hike could negatively affect buyer participation, trade confidence and auction competitiveness, which are critical to price discovery in the FCV system.
He pointed out that although the measure is being described as “revenue-neutral,” it effectively increases the tax burden on legal cigarettes by around 73%, potentially making them two to three times costlier and reducing legal demand.
“This could directly affect auction dynamics, resulting in lower prices and higher unsold stocks,” he said, cautioning that the entire value chain — from farmers to processors — could come under pressure.
Farmers flag falling prices
Farmers from Andhra Pradesh and Telangana told the minister that their crops are ready and auctions are expected to begin next month, but fears of reduced domestic demand may dampen trader participation.
They warned that sudden tax shocks in the past have often led to growth in illegal and smuggled products. Some cited the example of South Africa, where illicit trade reportedly expanded sharply, eroding the legal market.
Representatives from Karnataka said auction prices have already declined by nearly 10%, and concerns are mounting that the 18% tax on unmanufactured tobacco, effective February 1, could further deter buyers.
“If traders stay away, auctions will weaken and farmers will face heavy losses,” a farmer representative said.
Government response
Finance Minister Sitharaman assured the delegation that the government would review the concerns raised.
According to participants, she reiterated that the government’s approach would remain revenue-neutral and that it is not seeking to generate additional revenue from the tobacco sector, while also considering the broader impact on farmers, trade and the regulated ecosystem.
Smt. Purandeswari assured farmers that she would continue to follow up with the government and raise the matter at appropriate forums.
Why this matters
FCV tobacco cultivation supports thousands of small and marginal farmers across southern India and operates through a regulated auction system overseen by the Tobacco Board. Any sharp change in tax policy can directly influence demand, prices and farmer earnings.
Industry stakeholders say balancing public health goals, revenue considerations and farmer livelihoods will be key as the government reviews the policy.
