In India [ Images ], 'bidis' and chewing tobacco account for 86% of tobacco consumed. Cigarettes account for the remaining. With such a skew, growth prospects are promising.

But globally, the industry under scrutiny for health reasons. It is believed that the Indian tobacco sector is the least taxed on a relatively basis. Given this backdrop, can the growth momentum continue?

Key Positives It's a habit industry and hence, continues to thrive despite odds like punitive taxation, ban on smoking in public places and restrictive advertising. Being a habit industry, it finds it comparatively easy to pass on excise duty hikes, though lately there have been signs of a resistance to price hikes.		Key Negatives Heavily penalized through punitive taxation policies. Cigarette companies pay roughly 50% of their revenues as excise. As a result, the share of cigarettes in total tobacco consumption has declined from 21% in 1981-82 to a mere 14% in 2003. Domestic cigarette companies suffer a double whammy. On the one hand, they are barred from sponsoring sports and cultural events and on the other contraband cigarette volumes continue to thrive. Net result, volume growth is sluggish. In the last 20 years, tobacco consumption in non-cigarette varieties has increased especially in the chewing format by 68 m Kgs and reduced in the cigarette format by 21 m Kgs.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.