ITC Selling Cigarettes At Higher Prices Ahead Of February 1; Black Marketing, Just Done Differently?

As the government prepares to roll out a steep new excise duty on cigarettes from February 1, 2026, prices are already climbing at shop counters across India. The tax has not yet come into force, but for consumers, the impact is being felt now. At the centre of this uneasy shift is ITC, the company that dominates over 70% of India’s legal cigarette market.

Officially, the higher cigarette tax is meant to curb smoking and boost revenues. Unofficially, however, it has opened up uncomfortable questions about pricing behaviour, market power, and ethics. When cigarettes begin selling at higher prices before the tax legally applies, the distinction between lawful anticipation and black marketing starts to blur. 

The question this raises is simple but unsettling: Is ITC merely pricing in future costs, or is India witnessing a sanitised, institutional version of black marketing playing out in plain sight?
Short answer: yes.

What is unfolding in India’s cigarette market fits the economic and moral definition of black marketing, even if it is wrapped in a thin layer of legal defensibility.

To understand why, it is important to first strip black marketing of the clichés that usually surround it. The term is often associated with smuggling rings, counterfeit goods, shadowy godowns, and cash-only transactions. That image is outdated and incomplete. In modern, tightly regulated markets, black marketing has evolved. It no longer always operates outside the system; increasingly, it operates through the system.

At its core, black marketing is not defined by illegality alone. It is defined by distortion. Black marketing exists wherever prices are artificially inflated, regulatory timing is exploited, scarcity or expectation is manipulated, and consumers are charged amounts that are not justified by prevailing law or actual cost. Whether or not a specific statute is violated is secondary.

The central question is whether the market is being bent in a way that extracts unjustified value from consumers. By that standard, what is currently happening in India’s cigarette market demands serious scrutiny.

What Is Actually Happening On The Ground

The government’s revised cigarette tax framework is unambiguous. The new excise duty regime comes into force on February 1, 2026. Until that date, manufacturers are not legally required to pay the higher duty. There is no grey area on timing.

Yet cigarette prices in the market have already risen. Several brands, overwhelmingly dominated by ITC, are being sold at higher rates even though the higher tax has not yet been imposed, collected, or remitted to the exchequer.

In simple terms, consumers are being charged today for a tax that applies tomorrow.

The price reflects a future cost, not a current one. This distinction matters. Passing on a cost implies that the cost has already been incurred. What is happening here is anticipatory profiteering – consumers are paying in advance for a liability that does not yet exist, while the incremental margin, for now, accrues entirely to the supply chain.

What ITC Is Doing And Why the Question Refuses To Go Away

This brings the spotlight squarely onto ITC.

Well before the February 1 deadline, ITC’s cigarette brands are already being sold at higher prices in the market. The increase is visible, widespread, and consistent across multiple variants. This raises an uncomfortable but unavoidable question: if the cost increase is scheduled for February 1, on what basis are consumers being charged more today?

And more pointedly: does this amount to black marketing – executed not through illegality, but through market power and timing?

If confronted, ITC would likely argue that the company itself has not formally raised prices and that any increase is occurring at the distributor or retailer level. This defence is familiar and convenient but incomplete.

In a category as tightly controlled as cigarettes, distribution does not operate independently of the manufacturer. ITC exercises deep influence over supply volumes, replenishment cycles, pricing architecture, MRP structures, and retailer incentives. Distributors and retailers function within an ecosystem designed, supplied, and sustained by the company.

Passing responsibility downstream does not dissolve accountability upstream. When a dominant manufacturer benefits from higher realised prices without the legal trigger for those prices having activated, the issue is not merely who raised the price but who enabled the conditions under which that price could rise without resistance or correction.

This is where the debate moves beyond legality and enters the realm of ethics.

What does it say about corporate conduct when consumers are made to pay today for a tax that applies tomorrow? What does it say about market responsibility when a company controlling over 70% of a legal market allows or simply does not restrain – premature price escalation that boosts margins during the transition window?

Why This Still Qualifies As Black Marketing In Substance

The justifications follow a predictable script. MRPs are not regulated upward in real time. Businesses are allowed to price in expectations. Distributors are independent actors. Some of these arguments may survive narrow legal scrutiny. But black marketing has never been only a courtroom concept. It is a market-behaviour phenomenon.

• First, there is the issue of price without legal basis. Charging consumers for a tax that has not yet come into force violates the basic principle of fair trade, regardless of whether a statute explicitly prohibits it.

• Second, there is information asymmetry. Consumers are not told they are paying higher prices in anticipation of a future tax. There is no disclosure, no transparency, no explanation – only a higher price at the counter. This imbalance is a classic black-market trait.

• Third, the situation creates artificial scarcity psychology. Retailers know prices are officially going to rise soon. That knowledge incentivises hoarding, selective selling, and higher margins in the interim period. “Buy now, sell higher” is not accidental behaviour; it is a predictable response engineered by the gap between policy announcement and enforcement.

• Finally, there is plausible deniability through distribution. When a dominant company retains tight control over supply and pricing frameworks but allows distortions to surface downstream, responsibility becomes diffused and accountability diluted. This is not disorder; it is structured opacity — a hallmark of modern, institutionalised black marketing.

The Uncomfortable Truth

This is not the black market of smuggled cartons and border routes. That problem already exists and is separate – though related.

What is more troubling is something subtler and more corrosive: institutionalised black marketing. It is legally buffered, regulator-aware, and morally hollow. It does not break the law outright. It runs ahead of the law, hides behind complexity, and thrives on enforcement inertia.

In such a system, power replaces intent as the key determinant of consequence. Those with scale extract value from distortion long before accountability arrives, if it arrives at all.

If a price increase is justified by a law that has not yet begun, the act may be legally defensible but the intent is not honest. And black marketing has always been about intent, not merely statutes.

Call it anticipatory pricing. Call it market expectation. Call it distributor-led behaviour. Strip away the euphemisms and what remains is a familiar structure: charging more today for something that is not yet legally owed, by exploiting timing, dominance, and consumer helplessness.

In substance, that is black marketing just dressed in compliance language.

Illicit Trade, Tax Distortion, And The ITC Paradox

According to Euromonitor International, illicit cigarettes account for 26.1% of India’s total cigarette consumption, making India the fourth-largest illicit cigarette market in the world by volume. Industry estimates suggest this share has more than doubled since 2012, coinciding almost perfectly with repeated tax hikes, tightening regulations, and shrinking space for legal manufacturers.

The economics are brutally simple. A legal, duty-paid cigarette in India often retails at ₹18 or more per stick, while smuggled brands such as ESSE, Mond, Win, Manchester, Black, Paris, Ace, and Peacock are widely available at ₹8–10 per stick. These products evade excise duty, GST, cess, licensing, and compliance costs. Many also bypass India’s mandatory 85% pictorial health warnings, making their packaging far more attractive, particularly to younger consumers.

As we mentioned before, high taxation does not eliminate demand; it redirects it. When legal cigarettes become prohibitively expensive, consumption does not vanish, it migrates into informal and illegal channels.

This problem is poised to worsen. From February 1, 2026, excise duty increases under the revamped framework will range from ₹2,050 to ₹8,500 per 1,000 sticks, translating into an effective tax increase of 40–50% across several categories. Trade bodies have warned this could be a tipping point for the legal cigarette market.

On paper, this should have devastated cigarette manufacturers.

Where ITC Enters The Picture

India’s legal cigarette market has shrunk by an estimated 25% over the past decade, driven by relentless tax hikes, advertising bans, packaging mandates, and regulatory tightening. By conventional logic, this should have crippled the industry’s largest player.

Yet ITC’s cigarette business continues to generate tens of thousands of crores in annual revenue, remaining its single largest profit engine and financing diversification across FMCG, hotels, agri-business, and packaging.

This divergence — falling volumes alongside resilient profitability — is not accidental. It is structural.

ITC controls over 70% of India’s legal cigarette market, operates an unmatched distribution network reaching millions of outlets, and maintains a multi-tiered brand portfolio spanning every viable legal price point. Its cash flows allow it to absorb regulatory shocks that routinely destroy smaller competitors.

Most critically, regulation itself has become a moat. Advertising bans, plain packaging, licensing barriers, and restrictions on brand-building make meaningful new entry nearly impossible. When compliance becomes prohibitively expensive, only the largest player can afford to remain compliant at scale.

Why Black Marketing Quietly Reinforces ITC’s Dominance

Counterintuitive as it may sound, the expansion of cigarette black marketing does not weaken ITC. It reinforces its dominance.

Illicit cigarettes do not attack the market leader first. They wipe out marginal legal players – smaller manufacturers and fringe brands that lack the balance sheet strength to survive declining volumes and rising costs. As these players exit, the competitive field narrows further.

Repeated tax hikes freeze the market in its existing structure. No serious new competitor can emerge when profitability is uncertain from day one and brand-building is virtually impossible.

What remains is a deeply distorted market: a vast illegal segment operating outside the tax net, and a shrinking but highly concentrated legal segment dominated almost entirely by ITC. The middle – where competition should exist – collapses.

In this environment, smuggling does not function as a competitive threat. It functions as a filter.

The Last Bit, Financial Reality And Market Fallout

ITC’s financials reflect this insulation. For Q2 FY26, the company reported ₹19,502 crore in revenue and ₹5,187 crore in consolidated net profit, with cigarettes contributing over 41% of gross revenue. Despite regulatory headwinds, the business continues to generate predictable cash flows.

Markets, however, are beginning to price in stress. ITC shares have fallen sharply following the latest excise hikes, hitting 52-week lows. Brokerages have downgraded the stock, warning of volume declines, margin pressure, and accelerated migration to illicit cigarettes.

Even so, the larger structure remains intact. ITC’s leadership is the product of layered advantages – history, regulation, brands, distribution, sourcing, and financial strength – reinforcing one another. As long as cigarettes remain legal in India, this structure is unlikely to break.

And it is within this distorted ecosystem – where taxes rise faster than enforcement, illicit trade thrives, and dominant players absorb shocks that destroy competitors, that questions about ethics, pricing behaviour, and modern forms of black marketing refuse to go away.