Home / Current Issue / Paper 1714445
Counting The Real Cost: An Economic Analysis of Tobacco Control and Fiscal Dependence in India
Subject area: Arts, Social Sciences and Humanities · Area of research: Public Finance
DOI: https://doi.org/10.64388/IREV9I8-1714445
Abstract
Unproductive or “sin” industries such as alcohol and tobacco constitute an important source of revenue for Indian states through excise duties and indirect taxation. At the same time, these industries generate substantial negative externalities in the form of public health costs, productivity losses and social disruption. This paper examines the political economy of state dependence on unproductive industries and evaluates whether their fiscal contribution outweighs their long-term economic and social costs. Using secondary data from state budget documents, national health surveys, and official economic reports, the study compares state-wise revenue from alcohol and tobacco with public expenditure on related health outcomes and welfare losses. The findings indicate that although these industries provide short-term fiscal relief, the cumulative burden on healthcare systems and human capital significantly exceeds the revenue generated, resulting in a net economic loss. The paper argues that sustained reliance on such revenue sources undermines allocate efficiency, equity, and fiscal stability, thereby weakening all three of Musgrave’s functions of public finance. The study concludes by recommending revenue diversification, stronger regulation, and increased investment in preventive healthcare to reduce fiscal dependence on unproductive industries.
Keywords
Unproductive Industries, Sin Taxes, Public Health Costs, State Revenue, Welfare Economics, India
References
[1] Government of India. (Year). Economic Survey of India.
[2] Ministry of Health and Family Welfare. (Year). NFHS-5 Report.
[3] WHO. (Year). Global Status Report on Alcohol and Health.
[4] NITI Aayog. (Year). Health Index Report.
[5] State Budget Documents: Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, etc.
[6] PRS / State of State Finances (2022–23): overview of state tax revenue composition and role of state excise. PRS Legislative Research
[7] National Health Accounts (NHA) 2021–22: public health spending and method for accounting health expenditures. National Health Systems Resource Centre
[8] Ministry of Health & Family Welfare – Annual Report / WHO country-level references: disease burden and programmatic spending (for disease cost context). Ministry of Health and Family Welfare+1
[9] Statista / market snapshots: state-level shares of excise on OTR for leading states/UTs (useful quick reference for top contributors; note caveat on proprietary/aggregation methods). Scribd
[10] India Budget / Annex tables and Economics Survey tabulations (for national and aggregate health expenditure and social services numbers)
How to cite this paper
@article{1714445,
author = {Dr. Vinod Waghmare},
title = {Counting The Real Cost: An Economic Analysis of Tobacco Control and Fiscal Dependence in India},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {9},
number = {8},
pages = {1246-1252},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1714445.pdf},
abstract = {Unproductive or “sin” industries such as alcohol and tobacco constitute an important source of revenue for Indian states through excise duties and indirect taxation. At the same time, these industries generate substantial negative externalities in the form of public health costs, productivity losses and social disruption. This paper examines the political economy of state dependence on unproductive industries and evaluates whether their fiscal contribution outweighs their long-term economic and social costs. Using secondary data from state budget documents, national health surveys, and official economic reports, the study compares state-wise revenue from alcohol and tobacco with public expenditure on related health outcomes and welfare losses. The findings indicate that although these industries provide short-term fiscal relief, the cumulative burden on healthcare systems and human capital significantly exceeds the revenue generated, resulting in a net economic loss. The paper argues that sustained reliance on such revenue sources undermines allocate efficiency, equity, and fiscal stability, thereby weakening all three of Musgrave’s functions of public finance. The study concludes by recommending revenue diversification, stronger regulation, and increased investment in preventive healthcare to reduce fiscal dependence on unproductive industries.},
keywords = {Unproductive Industries, Sin Taxes, Public Health Costs, State Revenue, Welfare Economics, India},
month = {February},
doi = {https://doi.org/10.64388/IREV9I8-1714445}
}