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TARI study, shared with ASSOCHAM unveils a model to measure full economic value generated by an entire sector

 

Wednesday, May 29, 2019


Tobacco sector among the highest contributors in terms of total economic value generated at a whopping Rs. 11,79,498 cr.
 
·         An estimated 45.7 million people depend on tobacco sector in India for their livelihood, with the sector representing one of the most thriving farming-processing-manufacturing-trading-exporting continuum
·         For the first time four key aspects of economic value generation taken into account – immediate effect, type 1multiplier effect, type 2 multiplier effect and other multiplied economic effects
 
New Delhi, May 29, 2019: TARI (Thought Arbitrage Research Institute) today shared its study with ASSOCHAM, stating that as per an economic metric model it has measured the total cumulative intrinsic economic value generated by a sector over the years. This model is developed by combining financial reports, econometric and statistical methodologies, as per the TARI study shared with the ASSOCHAM. 
 
Applying this model to the Indian tobacco sector the figure is a whopping Rs. 11,79,498 crores as the total cumulative intrinsic economic value generation by the sector.
 
The study said, “Tobacco sector was chosen as the subject of the study because of its spread right from the farms to the local and the international markets. It cuts across a diverse set of constituents across its entire value chain ranging from farmers who are involved in its cultivation along with farm workers and labourers, the processing units, the transporters, trade channel, manufacturing units, brand ownersas well as the exports operations given its lucrative exports status.”
 
According to Ms Kshama V Kaushik, Director, TARI, the research firm which has conducted the study, “One of the important aspects of this study is that for the first time the economic contribution made by the tobacco sector to India’s economy has been quantified.  While doing this, the benefits accrued to all the stakeholders in the value chain have been taken into consideration. The cascading effects of the socio-economic benefits of the tobacco industry on other sectors of the economy have been overlooked by the studies which were done so far.
 
Therefore, in the present study, we have adopted the stakeholder approach to identify all market participants of this sector across both demand and supply sides. We have then applied suitable proven methodologies to calculate the economic value generated by each stakeholder group before aggregating the values to compute the total economic value of the sector.”.
 
The Method:
 
To calculate the economic value generated by the tobacco sector in India, the study used a two-step approach. First, the total annual value generated by the tobacco sector in 2016-17 was computed. This was then extended to estimating the total cumulative value generated by the sector, over the years, to assess the overall contribution of the sector.
 
The calculations of multiplier effect use a quantitative economic approach developed by the famous economist and Nobel Prize winner Wassily Leontief in 1941. This technique involves the representation of interdependencies between different branches of a national economy or different regional economies and establishes linkages between various sectors, industries and commodities.
 
It has been well known that about 45.7 million people in India depend on the tobacco sector for their livelihoods, comprising of 6 million are farmers, 20 million farm labours, 4 million leaf pluckers, 8.5 million working in processing, manufacturing and exports and 7.2 million working in retailing and trading.
 
However, what has not been assessed by the previous studies is the compounding effect of tobacco sector on the livelihoods of people who indirectly earn from the industry such as people engaged in packaging, warehousing, flavour & fragrance, paper, jute, mentha, areca nut, transporters input industries like fertilizers, pesticides etc.  
 
Tobacco contributes a significant percentage of the total value of commercial crops in India generating huge socio-economic benefits in terms of agricultural employment, farm incomes, revenue generation and foreign exchange earnings.
 
There is established data that India is a leading tobacco exporter with exports of leaf tobacco and tobacco products contributing around 6,000 crores annually in terms of foreign exchange to the government.  Out of the total net exports, the unmanufactured tobacco have a significant share amounting to 4,173 crores and the balance of around 1,830 crores includes tobacco products like cigars, cheroots, cigarillos and cigarettes, etc.  India produces tobaccos of different grades and types for various end users, thus providing a one-stop shop for different styles, qualities and price ranges. Flue Cured Virginia (FCV) tobacco is the main exportable tobacco produced in India with around 70% of FCV tobacco crop being exported. India accounts for 5% value share of the US$ 12 billion global tobacco leaf export trade.   The diversity of Indian tobaccos has enabled the country to export tobacco to over 100 countries across the globe.
 
However, the economic effect of many other factors associated with the sector have so far been overlooked by earlier studies. Most farmers involved in tobacco production are in the worst farming belts of the country with poor soil quality unfit to grow many other crops. Tobacco growing is highly labour intensive yet remunerative compared to food crops. It can grow on soil of poor fertility and can withstand variations in weather conditions better than other crops, especially in the states of Andhra Pradesh, Karnataka and Gujarat. Problems of pests and diseases are much less severe in tobacco than in alternative crops such as cotton, chilies and groundnuts. 
 
Studies also show that West Godavari and Prakasam districts of Andhra Pradesh which are significantly tobacco growing have significantly superior economic indicators than the other comparable districts in the state which grows other crops. Similar results are visible in Hassan and Mysore districts of Karnataka, which are also largely tobacco growing.
 
Hence, it becomes important to assess the total economic value generated by the tobacco sector in the debate on livelihoods for the people who derive their life’s dependence on the crop, which the present study addresses suitably by assessing the quantifiable economic contribution of the tobacco sector to the country’s economy.
 
 
About ASSOCHAM:

ASSOCHAM initiated its endeavour of value creation for Indian industry in 1920. Having in its fold more than 400 Chambers and Trade Associations, and serving more than 4,50,000 members from all over India. It has witnessed upswings as well as upheavals of Indian Economy, and contributed significantly by playing a catalytic role in shaping up the Trade, Commerce and Industrial environment of the country.
About TARI:
TARI is a not-for-profit organisation set up under Section 25 of the Indian Companies Act, 1956, to bridge the gap between policy initiatives and common perception through evidence-based research and comprehensive data-based reasoning.
 
For further details, please contact:
 
Manju Negi                                         AVDHESH SHARMA  
ASSOCHAM                                         ASSOCHAM  
manju.negi@assocham.com              avdhesh.sharma@assocham.com
011-46550509;                                    011-46550508

 

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