New Delhi, Feb. 18: India’s tobacco industry accounts for only about 1 per cent of industrial gross domestic product (GDP), according to a new analysis which suggests that tobacco’s assumed value to the economy is a myth.

The analysis by two economists has shown that tobacco’s share of industrial GDP and contribution to India’s foreign exchange reserves is insignificant, questioning views that stifling tobacco could hurt the economy.

“Campaigns for curbs on tobacco have always encountered arguments that tobacco makes a significant contribution to the economy through revenue and jobs. Our work shows that this is untrue,” said Saradindu Bhaduri, assistant professor of economics at the Jawaharlal Nehru University, New Delhi, and a co-author of the report released today by the non-government Voluntary Health Association of India.

Tobacco’s share in India’s GDP dropped from 1.8 per cent in 1999-2000 to 1.1 per cent in 2005-06, the report said. The net foreign exchange earnings from tobacco stands at Rs 346 crore — just 0.2 per cent of total foreign exchange reserves.

In the 1990s, the Indian Council of Medical Research had generated data to show that the health costs of tobacco-related illnesses far exceed what the tobacco industry may contribute to the economy.

But tobacco lobbyists have argued that the industry is also a big employer.

The new economic analysis has acknowledged that tobacco is labour-intensive and accounts for about 5 per cent of industrial jobs in the country, but its authors also caution that much of this employment is based on exploitation.

The average annual worker’s wages in the tobacco sector is about Rs 17,900, which is among the lowest in any industrial sector, the report said. “This is pure exploitation — not honourable employment,” Bhaduri said.

“Yes, tobacco is a large employer, but it also comes at a health cost,” he said. The report points out that raising excise duty on tobacco has had only limited impacts on pulling people away from smoking and has recommended the introduction of a “discriminatory tax” on cigarette and bidi production.

“We’re proposing something new — a tax policy that makes tobacco production less lucrative than it is today and thus discourages investments in the tobacco sector,” Bhaduri said. The indirect excise taxes address consumers — such a direct tax selectively imposed on tobacco industry would be a disincentive for tobacco production, he said.

The report said wages sometimes do not conform to minimum prescribed wages. “In Bengal, we encountered workers who were paid only Rs 45 for rolling 1,000 bidis. The minimum wage there is Rs 100 per 1,000 bidis,” Bhaduri said.