abstract

This empirical and theoretical study investigates the extent to which the 16% increase in National Calamity Contingent Duty (NCCD) on cigarettes introduced under the tobacco control measures in the Union Budget of India (2025–26) serves as an effective mechanism for internalizing negative consumption externalities and mitigating healthcare expenditure among residents of South Mumbai, India. Utilizing a mixed-methods methodology, primary quantitative data was gathered from a surveyed sample of 79 active cigarette consumers across diverse socioeconomic backgrounds in South Mumbai. Statistical tools, including Pearson’s correlation coefficient (r = -0.1281) and Chi-Square goodness-of-fit testing, reveal a weak negative relationship between tax-induced price increases and smoking frequency. Primary findings demonstrate that while overall daily smoking prevalence shifted from 48.7% pre-policy to 26.9% post-policy, this reduction was heavily concentrated among low-income domestic workers (41.0% of sample), whereas 70.5% of respondents across middle- and high-income brackets reported no significant alteration in their consumption habits. Economic framework analysis confirms that the highly price-inelastic nature of cigarettes (PED < 1), driven by nicotine addiction, severely limits the effectiveness of a minor tax-induced price increase (approx. 1–3% retail rise). Secondary data analysis corroborates that while excise taxes generate substantial government revenue, nominal tax adjustments fail to bridge the marginal external cost gap, leaving second-hand smoke exposure and long-term public health burdens largely uncorrected. The study concludes that the 16% duty hike exhibits significant regressivity, placing a disproportionate financial strain on low-income demographics without achieving the requisite demand contraction among higher-income cohorts. To achieve substantive allocative efficiency and health cost containment, fiscal tax hikes must exceed 50% and be coupled with non-price measures, such as expanded smoking bans, comprehensive cessation support, and anti-illicit trade enforcement.