‘Grade C’ rating not linked to quality of data, but to outdated base year, says FM Sitharaman

Finance Minister Nirmala Sitharaman speaks in the Lok Sabha during the Winter session of Parliament, in New Delhi, on Wednesday
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Finance Minister Nirmala Sitharaman on Wednesday clarified that ‘Grade C’ rating for national income accounting was linked to the outdated base year and not to the quality or credibility of the data itself.  

Sitharaman was replying to debate on Central Excise (Amendment) Bill in the Lok Sabha. She assured that post enactment, money collected from excise duty on tobacco and related products will be shared with States.

The Minister’s remark has come at a time when question was raised on GDP growth number of 8.2 per cent for July-September quarter due to International Monetary Fund’s grading on certain category of data.  “The point was the quality of data on which the C grade was given. The grade was assigned to data on national accounts, what was the reason behind C rating? That the data are based on an outdated base year which is 2011-2012 but government is now changing that and from next year we will have a data base year as 2022-2023 and from February 26-27 it will come into execution,” she said.

Duty on tobacco products

Talking about the Bill, she said it seeks to levy excise duty on tobacco and related products. Post enactment, there will be no additional tax on tobacco and related products, and the same tax burden, as currently applicable under the GST regime, will continue.

“This is not an additional tax. This is not something which the Centre is taking away. This is not a cess. This is excise duty. It existed before GST… It is coming back to the Centre, to be collected as excise duty, which will go to the divisible pool. It is going to be redistributed again at the 41 per cent which has to go to the States,” Sitharaman said while adding that the levy of excise on tobacco will ensure that the tax incidence on the demerit good remains the same even after the expiry of the GST compensation cess.

Sitharaman said since the GST law caps maximum rate of tax at 40 per cent, the ultimate tax incidence on tobacco after removal of GST cess would come down from the current level if excise duty is not levied. “In order to ensure that the incidence is not lower than what it was during GST with the compensation cess, we are bringing this excise. In a way, we are saying cigarettes should not become affordable now because incidence has become less,” the minister said.

The Bill will replace the GST compensation cess, which is currently levied on all tobacco products like cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco. Currently, a 28 per cent GST plus cess at a varied rate is levied on tobacco.

The Bill proposes to levy an excise duty of 60-70 per cent on unmanufactured tobacco. Excise on cigars and cheroots is proposed at 25 per cent or ₹5,000 per 1,000 sticks, whichever is higher. Cigarettes, not having filters, and of length not over 65 millimetres, will attract duty of ₹2,700 per 1,000 sticks and ₹4,500 per 1,000 sticks for length over 65 millimetres but not exceeding 70 millimetres.

Sitharaman further said the Bill was necessary as the loan taken to meet the revenue loss of States during Covid will be repaid in a “couple of weeks”, post which the compensation cess will cease to exist.

Published on December 3, 2025