NEW DELHI, 2 January 2025: The Federation of All India Farmer Associations (FAIFA) has raised concerns over the Ministry of Finance’s latest excise notification on tobacco products, warning that the sharp increase in duties could significantly disrupt the legal tobacco value chain and intensify financial stress on farmers.
Under the Chewing Tobacco, Jarda Scented Tobacco and Gutkha Packing Machines (Capacity Determination and Collection of Duty) Rules, 2026, excise duty has been set in the range of ₹2,050 to ₹8,500 per 1,000 sticks, depending on cigarette length, effective from 1 February 2026. FAIFA said the move contradicts earlier government assurances that the transition from the Compensation Cess regime would be revenue-neutral for tobacco products.
According to FAIFA, the higher excise burden is likely to force manufacturers to raise prices of finished goods, resulting in lower legal sales volumes. This, in turn, could reduce demand for domestically grown tobacco, leading to oversupply and price pressure at the farmgate. Farmers are already facing stress from falling export realisations, stagnant domestic prices, rising input costs and shrinking cultivation areas due to regulatory caps, the association noted.
FAIFA highlighted what it termed a long-standing fiscal imbalance in India’s tobacco taxation framework, particularly affecting flue-cured Virginia (FCV) tobacco growers in Andhra Pradesh and Karnataka. Taxes on cigarettes, which use FCV tobacco, are more than 50 times higher per kg than those on bidis and over 30 times higher than on chewing tobacco, the body said. This disparity, FAIFA argues, disproportionately penalises the most regulated segment of the sector.
Murali Babu, President of FAIFA, said farmers had relied on the government’s September 2025 assurance that GST 2.0 would keep the overall tax incidence on tobacco unchanged. “Instead of revenue neutrality, the notified rates represent a sharp escalation that threatens farmer livelihoods,” he said.
FAIFA also warned that higher prices could accelerate consumer migration to illegal and smuggled products. India is already the world’s fourth-largest illicit cigarette market, with illegal products accounting for around 26% of total consumption, driven largely by tax arbitrage, the association said.
The group has urged the government to roll back the notified excise rates and reissue them at revenue-neutral levels to protect farmer incomes, curb smuggling and stabilise the agricultural ecosystem linked to the legal tobacco industry.
