To what extent has the vape ban been effective in reducing the welfare costs of tobacco consumption in Bangalore?

To what extent has the vape ban been effective in reducing the welfare costs of tobacco consumption in Bangalore?

Tobacco is a de-merit good due to its harmful content nicotine, which as a major ingredient, accounts for a larger proportions of the substance abuse among the Indian youth. Demerit goods refer to those which are not undesirable for consumers only, but are over provided in the market1, leading to spill- over costs to the society. Smoked tobacco can be in different forms, like cigarettes, cigars, bidis, and kreteks, or loose tobacco in a pipe or hookah, and other tobacco consumption is in the form of chewing tobacco, snuff, dip, and snus; snuff can also be sniffed2. All forms of tobacco can be categorized as de-merit goods, as they are causing harmful effects directly to the user and indirectly to his family and the wider society.

Vaping is heating a liquid, turning it into a vapour, using an electronic inhaler device to deliver nicotine along with other chemicals, instead of burning of tobacco3. Vaping is an alternative form of tobacco consumption. Vape devices, also called e-cigarettes, are two types, discreet pod / pen devices and more complex tank devices4. E-Cigarette heats the liquid nicotine with other raw-materials to produce the vapour, which is inhaled by the consumer5. Electronic cigarettes, as an alternative system of the nicotine consumption, have relatively less harmful emissions than smoking6. However, they are also considered as demerit goods, though less harmful than the consumption of cigarettes and other forms of tobacco7. This can also be a substitute for more harmful cigarette smoking.

Much before the Union Government’s ban, on 15th June, 2016, the Minister of Health and Welfare, U T Khader announced the banning of the e-cigarettes in the State of Karnataka, citing the addiction of a huge number of youngsters towards vaping, as per the study conducted by the state health department in collaboration with other experts, which showed that e-cigarettes attracts the younger generation to consume the conventional cigarettes. U T Khader, while announcing the vaping ban, also cited – “it is shocking to that even medical shops sell e-cigarettes” and so need to ban the vaping, also based on the notification on the recommendation of a committee on tobacco control. Laws permit use of two milligrams of nicotine, but for chewable chocolates only, to facilitate the de- addiction, which was clearly misused by the e-cigarette manufacturers, as the minister said. Thus the broader outcome of the vaping among teenagers can have far-reaching long-term implications of sparking larger consumption of tobacco among the Bangalore youth.

Following the Karnataka Government ban, the Union Government also banned e-cigarettes, in August 2018, citing to “protect the population, especially youth and children, from the risk of its addiction.

This fired up the ongoing consumer protests in Karnataka, which escalated to a national level. In the Public Interest Litigation (PIL), the Association of Vapers India (AVI), a nation-wide consumer rights group of e-cigarette users, filed a case against the ban on e-cigarettes in the Karnataka High Court in 2018, producing evidence to say e-cigarettes were helping tobacco smokers quit and they accused the Karnataka Government of being not able to control the sale of e-cigarettes in online modes, which is clearly evident in the illegal supply of e-cigarettes in the Bangalore market, even through the online retailers like flipkart and amazon.

In a press meeting they organized, Samrat Chowdhery, director of AVI briefed “Banning their use while allowing cigarettes to be sold violates basic principles of public health; protects the tobacco industry and criminalizes citizens who are trying to avoid tobacco-related death and disease.

These recent dynamics on vaping, from all fronts has a clear impact on the tobacco market of Karnataka and India, as a whole, adding much newer dimensions to the vape ban in 2016. Thus, a study is focused on the Government intervention in the Bangalore tobacco market and the welfare impact of the vaping ban, seems relevant and significant in the correction of market failure, in a local and even national level.

Therefore the research question

To what extent has the vape ban been effective in reducing the welfare costs of tobacco consumption in Bangalore?

Over and above the study of the welfare impact, a comparison of vaping with the consumption of tobacco in other forms, majorly smoking is done to assess the overall impact of the Karnataka Government’s ban on the welfare costs; that is the external costs and thus the social costs due to the over-consumption of e-Cigarettes, especially by the Bangalore youth, from the time of the Government ban on vaping till now. This helps to examine the overall positive impact on the welfare costs for Government and hence the correction of the market failure in the broad tobacco market of Bangalore.

The research population is limited to the Bangalore City, and the investigation is done on the vape ban by Karnataka Government in 2016, followed by a nation-wide vape ban in 2018, by the Union Government. The research will be conducted based on the extensive secondary data, supported by the primary research conducted in the Bangalore city.

For Primary data I have collected data by questionnaire method. I have used 30 samples for collecting primary data.

Major secondary sources are the articles from local and national newspapers and a range of researches made in different disciplines on the same problem. Most of the news articles support the research with necessary facts and other historic data, during the period of the vape ban in Karnataka. The investigation is also extended to the nation-wide vape ban by Union Government and its repercussions, especially in the Bangalore City. The news articles of later years help to evaluate the impact of the opposition of the consumer associations, apart from the positive developments in the Bangalore tobacco market.

The welfare impact on the society of banning on the vape in Bangalore can be made more relevant with the primary investigation conducted on the selected group of tobacco consumers (vapers and consumers in other forms like chewing, smoking cigarettes, hooka Etc.) from Bangalore city. This gives the most relevant first-hand information, which must throw light on the level of addiction, the possibilities of alternatives and the rate of fall in the overall consumption of tobacco in the city.

An appropriate mix of primary and secondary investigation, is done to maximize the reliability of the data processed, as the respondents in the survey may not give a true representation of the total tobacco consumers and the secondary sources may not be up-to-date and absolutely free from any possible media bias (because of which the results may seem over generalized). Supplementing the secondary research with primary findings helped to minimize any such reliability issues to a large extent.

Therefore my hypothesis is vaping have been effective in reducing the welfare loss in regard to the consumption of tobaccos’.

The questionnaire survey conducted on 30 tobacco consumers in the Bangalore market of the age
group 18 to 28 years, revealed interesting facts about the consumer behavior in the Bangalore
tobacco market, even after the vape ban and the state categorizing tobacco as poison.

Nearly 27% of tobacco consumers represent the migrant population in Bangalore. Those who quit tobacco consumption also responded.

Here we can see the e-cigarettes industry have more market share this could be because of non price factor like people switching from tobacco consumption in different modes and moving to e- cigarettes or vape.

The high percentage of regular vapers, can be an indication of the addictive nature of the vape. However, the regular vapers share the opinion that e-cigarettes are the most harmless and least addictive among all the tobacco products. The e-cigarettes are more expensive, compared to the cigarettes and chewable tobacco, which are responded to be the most addictive forms of tobacco, followed by Hooka. Also, some of the respondents who all quitted smoking in the last few years, also shares the opinion that vaping helps to facilitate a smooth transition to free one from the tobacco addiction. Even after the vape ban and the classification of nicotine as poison by the State, e- cigarettes are found to be the available among the teen and youth consumers in Bangalore, as per the interaction with some respondents to verify similar findings from secondary sources. This is publically admitted by the State also. An observation on the consumption of the tobacco as a whole among the respondents is shown in a Venn diagram.

This tobacco industry with special reference to cigarettes do maintain the same market share. This is due to the easy availably and less cost and more choice. The economic market structure of monopolistic nature do exist here.

Half of the respondents were found to be the consumers of tobacco and put of them, nearly half consume Cigarettes, vape and hooka, indicated by the intersection of all 3 varieties of tobacco cause the major welfare costs in the tobacco market. Individually, the cigarette 9 smokers impact social welfare the most and the 14 vapers cause the least, although the smokers of hooka were mostly occasional^.

As like the figure 2 the ven figure 1 also refers to the monopolistic nature of the cigeratte industry. Where as the e-cigarette firms and usage is higher, this is because vapaing inelastic due to low substitutes and price rigidity.

As confirmed by the 3 of the 4 cigarette smokers who quitted, vape is found to help in the smokers to quit smoking, which verifies the Public Interest Litigation by the Association of Vapers India (AVI), who produced the evidence to say e-cigarettes were helping tobacco smokers quit for their case, as mentioned above.

The welfare loss is reduced due to the fact that has reduced smoking due to vape. It can be shown in the diagram. In this diagram MSB is greater than MSC. The shaded area is the welfare loss. This is a benefit ti the society. The private benefit is below the social benefit.

The analysis involves a broader study on the overall impact of the specific dynamics in the Bangalore vape market, (since the 2016 vape ban in the state), on the larger market of tobacco consumers, producers and the society, as a whole. Though the Government intervention in the Bangalore tobacco market may be restricted to the relatively narrow segment of vapers, a complete ban may have wider long-term welfare implications on the Bangalore Tobacco market as a whole, as per this research hypothesis.

This diagram shows the consumers of vape market in comparison to the tobacco market. As the goods seem to be complementary to each other. This mentions here that the goods are in relation with other or not.

The study examines the extent to which the vape ban in Karnataka corrects the market failure in the Bangalore tobacco market, as a whole. The effectiveness of the supply-side policy of vape ban in the city, (against the popular demand side policy of indirect taxes on demerit goods) initiate the question, whether the e-Cigarette is a demerit good or not. To have a thorough evaluation on the welfare impact of the vape ban, a comparison between vaping and smoking, as demerit goods are necessary.

A large proportion of e-cigarette consumers also consume, cigarettes and other forms like chewable tobacco, too. The high frequency consumers of e-cigarettes need to be tested clinically to assess the addictive nature of vaping. A detailed evaluation is required to categorize vaping, as a demerit good

Tobacco is a typical example of a demerit good, which is widely used by youth in Indian cities. according to the World Health Organisation more than 1 million Indians die because of tobacco consumption every year and it is consumed in various forms like cigarettes, bidis, cigars, hookah, e- cigarettes E-cigarettes (also known as vape pens) and electronic nicotine delivery systems (ENDS) etc. Tobacco contains many chemical substances such as nicotine, carbon monoxide and tar and potential carcinogen like Benzopyrene, Nitrosamine. These chemicals are mainly in the particulate and gaseous phase. Tobacco consumption is the major source of many fatal diseases like chronic respiratory diseases, diabetes, ischemic heart diseases and even cancer^.

Tobacco is the most addictive of all demerit goods, which means its demand is highly inelastic in nature. Therefore the MSB and MPB curves are sharply vertical in nature. This implies the consumers are highly insensitive to the changes in price, which means the consumption of tobacco will not change in proportion with even sharp changes in the price of tobacco (increase/decrease).Vape pens are also included as demerit good. They also follow inelastic demand curve. As we can see in the above analysis they follow a monopoly or oligopolistic market structure. And it promote vape pens that it will help in reduction of the consumption of tobacco.

Owing to the high price-inelastic demand, an imposition of indirect tax, by Government may not significantly reduce the consumption of tobacco (especially traditional cigarettes). Therefore Government has to use an appropriate mix of policies and legislation to curb the over-consumption of tobacco, like the age restrictions for smoking, legislation to prevent smoking in public places, imposing certain fine on the chewing and spitting tobacco in public places etc. Awareness campaigns educating the youth and as mentioned a very high taxation will effect the disposable income. This will help in reduction in the consumption of tobacco. They also follow the oligopolistic market structure where there will be very sellers and more buyers. Price rigidity due to non collusive nature and also follow prisoner’s dilemma.

For the comparison between smking and vaping, the relationship between e-Cigarettes and Cigarettes need to be studied. Based on the primary survey conducted on the tobacco consumers from 8 metro cities (with 375 respondents, each), 17.5 % of the consumers started their tobacco consumption with e-Cigarettes, which supports the argument that Vaping is a doorway to smoking or other harmful forms of tobacco consumption, especially for teenagers youngsters. A research by Dr Jennifer Leyden on a sample of younger population with median age 19, majority of patients presented with respiratory symptoms (98%), gastrointestinal symptoms (81per cent) and constitutional symptoms (100%)

This assumes both cigarettes and e-cigarettes are not substitutes, but related goods, where consumption of the former led to the regular use of the latter, meaning the e-cigarettes are demerit goods, with the external costs, as identified more as a starter for smoking, than its harmful vapour. Also, Karnataka Government has classified nicotine as a poisonous substance under the Karnataka Poisons Rules, 2019, in response to the nationwide protests by consumer groups on the vape ban.

However, e-cigarettes can be a way lesser harmful alternative for smoking and also a means to facilitate the nicotine replacement therapy to recover from the smoking habits. Therefore, it has some external (and so social benefits), which argues the same is not a demerit good.

Demerit goods are goods, which the external party is harmed or suffered due to an individual’s act. In this case cigarettes as seen above can be classified as demerit good.

The external costs incurred due to the over-consumption of demerit goods like tobacco are generally termed as negative consumption externalities. The over consumption of tobacco clearly indicates an over-allocation of resources towards their production and consumption, leading to a market failure. 

Figure - 1 illustrates the NCE in the vaping market of Bangalore before the ban.

The Marginal Social Benefits (MSB) curve fails to represent the external costs incurred by vaping, as the Marginal Private Benefits (MPB) enjoyed by the consumer is greater than the MSB. When MPB>MSB, the benefits enjoyed by the consumer of a tobacco is higher than their private costs, and the additional cost spills over to society, at the equilibrium output output Q1, where MSC= MPB. At Q2, MSC=MSB, represents the optimum allocation of resources, ie; the allocative efficiency.

Here the welfare loss is the shaded area. As we can see the in smoking the private benefit is above the social benefit and it creates welfare loss to the society. This can be corrected by government policy and informative advertisement.

This causes a welfare loss to the society, as shown by the shaded region, are the harmful effects of vaping for society as the deterioration of youth health etc. It might also have impacted the overall productivity and creativity of the youth. Bangalore, considered as the Silicon valley of India, as one of the cities with the largest number of technically skilled workers^, causing a broader welfare impact.

By internalizing the external costs, the welfare costs can be eliminated in the vaping market, maximizing social surplus at the optimum output, Q₂, for which the Government takes different measures to bring down the over consumption of the demerit good.

The Government intervention purely happened in the supply side through a complete ban on vaping.