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Business Frauds Day 80: ITC — VST Industries, Cigarette Lobbying Against Health Regulation

Day 80: ITC — VST Industries, Cigarette Lobbying Against Health Regulation

THE NUMBER In 2017, the Ministry of Health and Family Welfare revealed that the tobacco industry, led by ITC and VST Industries, spent ₹341.2 crore between 2011 and 2015 on "corporate social responsibility" (CSR) activities—many of which were later found to be thinly veiled lobbying efforts to weaken anti-tobacco regulations, including graphic health warnings on cigarette packs.

THE PERSON Yogesh Chander Deveshwar, the late chairman of ITC, was celebrated as one of India’s most visionary corporate leaders. Under his 21-year tenure, ITC transformed from a cigarette-dominated company into a diversified conglomerate with interests in FMCG, hotels, and agriculture. He was awarded the Padma Bhushan in 2011, featured on the covers of business magazines, and hailed as a "corporate statesman" who balanced profit with social responsibility. The public, investors, and even regulators saw ITC as a model of ethical capitalism—a company that funded rural development while complying with tobacco laws. The reality was far more calculated.

THE MECHANISM ITC and VST Industries didn’t need to falsify accounts or siphon money to commit fraud. Their weapon was influence—wielded through legal but ethically dubious means to delay, dilute, and dismantle public health policies that threatened their core business: cigarettes.

  1. CSR as Lobbying: Between 2011 and 2015, ITC and VST funneled crores into CSR initiatives under the guise of "rural development" and "sustainability." A 2017 investigation by the Indian Express found that many of these projects—such as "tobacco farmer welfare programs"—were used to build political goodwill with state governments, particularly in Andhra Pradesh and Karnataka, where tobacco cultivation is concentrated. These relationships were later leveraged to stall or water down regulations.

  2. Legal Challenges to Health Warnings: In 2014, the Ministry of Health mandated that 85% of cigarette packs display graphic health warnings. ITC and VST, along with other tobacco firms, challenged the rule in court, arguing it was "arbitrary" and "unconstitutional." The Supreme Court initially stayed the order, delaying implementation by two years. When the warnings finally took effect in 2016, they were reduced to 60% of the pack’s surface after further industry pressure.

  3. Political Donations: Between 2013 and 2017, ITC donated ₹13.5 crore to political parties, with the BJP receiving the largest share (₹7.5 crore), followed by the Congress (₹3.5 crore). While legal, these donations coincided with periods when key tobacco regulations were being debated or delayed. For instance, in 2017, the government deferred a proposal to ban loose cigarette sales—a move that would have hit ITC’s revenue—after industry pushback.

  4. Misleading "Harm Reduction" Narratives: ITC funded studies and white papers promoting "reduced-risk" tobacco products, such as e-cigarettes, as safer alternatives. These efforts were part of a global tobacco industry strategy to position itself as a "responsible" player while continuing to sell traditional cigarettes. In 2019, the Indian government banned e-cigarettes, but not before ITC had lobbied for years to keep them legal.

  5. Regulatory Capture: The Tobacco Board of India, which oversees tobacco cultivation and trade, has long been accused of being industry-friendly. A 2018 report by the Economic Times revealed that the board’s members included representatives from ITC and VST, creating a clear conflict of interest. This allowed the companies to influence policies on pricing, exports, and even the implementation of health warnings.

THE VICTIMS The real victims of this fraud are not shareholders or banks, but India’s public health system and its most vulnerable citizens.

  1. Tobacco Users: India has 267 million tobacco users, the second-highest in the world. The delay in implementing graphic health warnings—from 2014 to 2016—meant that millions of smokers continued to buy cigarettes without being confronted by the risks of cancer and lung disease. Studies show that graphic warnings reduce smoking rates by up to 12%.

  2. Children and Youth: The tobacco industry’s lobbying against bans on loose cigarette sales (which are cheaper and more accessible to minors) and gutka (chewing tobacco) has contributed to over 1.3 million children in India using tobacco daily, according to the Global Youth Tobacco Survey. These are future patients of India’s overburdened healthcare system.

  3. Tobacco Farmers: While ITC and VST claim to support farmers through CSR, the reality is more exploitative. Farmers are often trapped in debt cycles due to the companies’ pricing policies. A 2019 study by the Centre for Science and Environment found that tobacco farmers in Andhra Pradesh earn as little as ₹20,000 per year, while ITC’s net profit in 2023 was ₹20,000 crore.

  4. Taxpayers: The economic cost of tobacco use in India is ₹1.77 lakh crore annually, including healthcare expenses and lost productivity. Every rupee spent on treating tobacco-related diseases is a rupee not spent on education, infrastructure, or poverty alleviation.

THE INSTITUTIONS THAT FAILED This fraud thrived because multiple institutions either enabled it or looked the other way.

  1. The Ministry of Health: Despite being the nodal agency for tobacco control, the ministry repeatedly caved to industry pressure. In 2017, it diluted the 85% health warning rule to 60% after lobbying by ITC and VST. The ministry’s own data shows that stronger warnings save lives, yet it failed to stand firm.

  2. The Judiciary: The Supreme Court’s 2016 stay on the 85% warning rule was a gift to the tobacco industry. While the court eventually upheld the warnings, the delay allowed companies to sell billions of packs with weaker warnings, undermining public health.

  3. The Election Commission: Political donations by ITC and VST were legal, but the lack of transparency around how these funds influenced policy decisions is a glaring failure. The EC has no mechanism to track whether donations lead to regulatory favors.

  4. The Tobacco Board of India: This body, meant to regulate the industry, has been captured by the very companies it is supposed to oversee. Its composition—with industry representatives on the board—ensures that policies favor corporate interests over public health.

  5. The Media: Many business publications uncritically amplified ITC’s "sustainability" narrative, rarely questioning the ethics of a cigarette company funding rural development while fighting health warnings. Investigative reports on tobacco lobbying were exceptions, not the norm.

THE LEGAL STATUS There is no criminal case here—because the fraud was legal. ITC and VST did not break any laws; they bent the system to their advantage. The only legal action has been public interest litigations (PILs) challenging the industry’s influence, but these have had limited impact. The companies continue to operate, their profits intact, while public health suffers.

THE LESSON This scandal reveals a structural flaw in India’s regulatory framework: corporate influence is not just legal—it is institutionalized. The tobacco industry’s ability to delay health warnings, capture regulators, and shape policy through CSR and political donations is a feature, not a bug, of India’s governance model.

The gap has not been closed. The Cigarettes and Other Tobacco Products Act (COTPA) remains weak, with no penalties for lobbying or regulatory capture. The Tobacco Board’s conflict of interest persists, and political donations continue to flow. The same fraud—using legal means to subvert public health for profit—is not just possible today; it is happening.

ONE LINE FOR YOUR MONEY When a company funds "social responsibility" while fighting laws that save lives, assume the former is a cover for the latter—and invest accordingly.