Up in smoke!

India's beedi makers are in trouble because of the smoking ban imposed by the Government. Mint reports that beedi makers have forecasted a job loss of 1 million in the industry because of the ban on smoking. The situation they find themselves in is funny.

“Things are looking quite bad. At one point, we even wanted to close down [production facilites] but that is impossible on account of the tough laws pertaining to closure. This (smoking) ban has made life quite difficult,” said [Ramesh] Patel

Thanks to the smoke and mirrors law which prevents smoking in 'public' places, the beedi industry is experiencing a fall in sales. But wait, thanks to the communists whom they pandered to before the smoking ban to help them 'compete' against the big tobacco companies, they are now not even able to cut their losses and bail out! The 'tough' laws preventing industries from retrenching its workers when experiencing the 'downturn' is a pet project of the CITU [Centre of Indian Trade Unions].

What makes their situation hilarious is that even their erstwhile supporters seem to have also ditched them. Mint reports,

"Pandhe, also the president of Centre of Indian Trade Unions (Citu), however, said the trade union will, however, not lend its support to beedimanufacturers. “People will smoke indoors if they want to and this will not impact their sales,” he noted "

There you have it. The very idealogical banner of protectionism has now come back and bit the beedi industry's behind!

I am not a smoker, but I think the ban on smoking is nonsense, simply because there is no way it can be implemented in a country such as ours. I daily see innumerable number of people 'flouting' the rule on the streets.

But, if you think this arguement is contradictory to the 'falling sales' arguement of the beedi manufacturers, think again. The market unfortunately runs on cues from the government. While the ban may not be effective because of it cannot be easily implemented, it has an impact on the industry value chain. The industry works because on various interconnected cogs. Farmers grow the tobacco, the beedi maker rolls the beedi, the distributor channels it and the retailer sells it. Due to the ban, while the consumer may not stop purchasing (the government argues that smokers will smoke at home and hence sales will not fall, although this may not be entirely true) the cost of making a beedi will rise. The farmer may not want to harvest tobacco fearing a fall in demand, the distributor may not channel it fearing fall in demand and the retailer may not stock it fearing that people may not buy it. This will eventually cause a fall in sales. Hence an entire industry value chain will fail.

I think the ban on smoking should be repealed. Instead a Pigouvian solution should be sought. It will make the industry either abandon a product which causes negative externalities, but still make it available for those who can 'afford' the negatives and pay for offsetting them. A market solution to the negative externality of smoking can be the only true solution.