Background:
India, similar to the several other countries, is facing a constant dilemma of contradictory policies of tobacco control and tobacco promotion. Such paradoxes are related with the fiscal instruments. Policy makers one side speak about the imposition/increase tax on tobacco to reduce its consumption, while on the other hand government provides institutional support/incentives and exemption for tobacco production/growing and manufacturing. This study deals with the paradox relating to taxation on smoking tobacco product especially in the bidi manufacturing in India which hold position in manufacturing and consumption. Bidi predominantly outside the domain of tax regulation and manufacturers producing less than 2 million sticks a year without machines (handmade) get exemption from excise duty. Such paradoxes needs to be addressed. This study provides evidence and background to advocate for higher tax on bidi tobacco and remove exemption.

Methods:
Study explored unit level data of various rounds of National Sample Survey (NSS) (for informal/unorganised bidi manufacturing) and Annual Survey of Industry (for formal/organised manufacturing) and Unemployment round of NSS. Simple statistics and econometrics tools are used.

Results:
This study has brought out evidences on what economic contribution the bidi industry has actually made, which type and nature of employment it provides, working conditions and compensation to workers (like wages, social security benefit, etc.) in comparison to the overall tobacco as well as overall manufacturing industry in the country? What have been the consequences, especially in respect of taxes, manufacturing and work conditions, of extending the exemption of excise duty to bidi manufacturers who produce less than 2 million sticks a year?.

Conclusions:
This study provides enough justification and rationale to increase tax and abolish the exemption on bidi manufacturing currently applicable to those producing less than 2 million sticks a year without machines.