The 5 Rupee Gutka Scam.

Take a look at the picture. Notice any difference between Pan Masala & Elaichi?

All of them indicate one thing: Pan Masala is what Ajay Devgn, Shahrukh Khan, Akshay Kumar, Ranveer Singh are indirectly advertising. 

As per Section 5 of the Cigarettes & other Tobacco Products Act, 2003 (COTPA) advertisement of cigarettes and other tobacco products (including Pan Masala, which has betel nuts, & chewing tobacco) are prohibited.

To get around the ban on advertising tobacco products like Gutka, companies use a method called “surrogate advertising.” They create two products with identical packaging: one that is legal to advertise (like a mouth freshener) and another that is illegal (Pan Masala). They then advertise the legal product, which looks exactly like the illegal one. Because it is extremely impossible to tell the difference between the legal product & illegal product while the product is marketed by Bollywood & Tollywood stars, it leads to more sales of the illegal product. 

Surrogate advertisement is a well documented practice in this industry and the Advertisement Standards Council of India (ASCI) has been actively monitoring the situation. Recently, ASCI approached Amitabh Bachan and has requested him to not campaign for Kamal Pasand Elaichi as it would lead to a lot of people, children included, getting addicted to Gutka for the two products are largely identical. Following which, Amitabh Bachchan stopped the network to air his pre-recorded advertisement. 

Even if you believe the actors are NOT advertising the tobacco product, it’s impossible to ignore how much money Gutka companies make by advertising a product that is NOT Gutka using these ‘heroes’.

The statistics pertaining to the size of this market itself demonstrates that the actors are, in effect, advertising Gutka without advertising it.

Rajnigandha, a Gutka brand launched by DS Group in 1983, is India’s largest selling premium Gutka, and is known for its rich blend of select ingredients and refreshing taste. It is prominently sold in the Northern states covering Rajasthan, Delhi, Haryana, Uttar Pradesh, Gujarat, Madhya Pradesh and Bihar. Our sources inform that its revenue from a small town, like Sikar, crosses 6 Crore a month. On an average, it generates a monthly revenue of 65 Crores from Rajasthan alone. 

Estimates indicate that DS Group gained more than 1000 Crore in 2023. Information about revenues earned by other producers like Kothari Products (produces Pan Parag), Manikchand, Lalwani Group, A&C (produces Pan Bahar) is not publicly available. However, the market size of the industry has reached INR 44,973.0 Crore in 2023. It’s projected to grow to INR 62,067.7 Crore by 2032.   

There is a reason why this industry (which sells its products for Rs. 5, usually) is projected to grow significantly, why all the companies in this industry are earning exorbitant profits. It is because of the illegal & abusive practice that is employed by the companies while selling the product. 

But before dealing with the practice, one needs to understand how Gutka was sold over the years.

In 1973, Paan, a popular homemade mouth freshener, was in high demand but suffered from the drawback of lengthy preparation time. Recognizing this opportunity, Sri Mansukhbhai developed an alternative that could be consumed readily. He formulated Pan Masala, a mouth freshener composed of ingredients such as betel nuts, cardamom, lime, catechu, and natural perfumes. This product was marketed under the name Pan Parag.

Pan Parag was marketed through placement at local ‘paanwala’ shops and television advertising. These marketing efforts, combined with the product itself, propelled it to industry leadership and significant growth. In 1985, Sri Mansukhbhai introduced a variant under the brand name “Parag,” which consisted of a mixture of Pan Masala and chewing tobacco – thus creating, in effect, Gutka.

Parag, which is essentially Gutka, achieved rapid market dominance & penetrated the market extensively, mirroring the success of Pan Parag. In 1986, Parag generated INR 100 Crore in revenue (India’s population at that time was approximately 80 Crore).

Its success stemmed primarily from the addictive nature of betel nuts and tobacco. Consequently, the industry increasingly focused on Gutka production and television advertising.

Shortly after the massive success of ‘PARAG’, in 1987, Sri Mansukhbhai was bestowed with the President’s Award and subsequently with the National Citizen Award in 1988. He is designated as the Father of the Pan Masala Industry.

It was not until 2011, when Food Safety & Standards (Prohibition & Restriction on Sales) Regulation (FSS), under Regulation 2.3.4., banned the production of all products that have tobacco, nicotine, betel nuts & other addictive ingredients. 

The prohibition imposed by Food Safety & Standards (FSS) had a major impact on Gutka producers, but its effectiveness was undermined in three ways. 

Firstly, the ban was NOT a national ban. It’s a state ban that needs to be imposed by the respective state’s Commissioner of Food Safety.  Each state’s Commissioner of Food Safety is not only provided with the discretion to decide when the Ban would come into effect but also for how long and what exactly to ban – the manufacturing or the storage or the sale or the export of Gutka. And many states, following their discretion, opted for one-year bans on the manufacturing, storage, and sale of Gutka, whenever it was convenient for them. 

This fragmented nature of the ban, with each state implementing it at different times, created a loophole that enabled Gutka manufacturers to continue selling it. 

The States that permanently prohibited, at least on paper, the sale of Gutka are: Lakshadweep, Mizoram, Manipur, Kerala, Odisha, UttarPradesh. 

Secondly & importantly, to circumvent the ban on Gutka, companies employed Twin packaging system also referred to as double packs, wherein two packets are created – one is Pan Masala (which doesn’t have tobacco) & the other with chewing tobacco inside, so that the users can mix and create Gutka, themselves. This created, for the first time, a packet solely containing chewing tobacco, to be sold alongside Pan Masala. 

Thirdly, the Commissioners of respective states banned manufacturing, storage, and sale of Gutka and not its import or export. This allowed manufacturers to exploit this limitation by labeling their packets as “export only” and shipping them to distributors in states where the ban was in effect. 

This way, they were able to illegally sell these packets at prices significantly higher than usual. Furthermore, even in states that had permanently banned the sale of Gutka, the product could still be found on the black market, often at extremely inflated prices, reaching up to Rs. 50 per packet. 

Everything changed from 2020 onwards. In the wake of Covid, all the bans around the Nation on the sale of Pan Masala & Chewing Tobacco were lifted. All except the ban on the advertisement imposed by COTPA  (Cigarettes and other Tobacco Products Act) in 2003. 

To circumvent this ban, to advertise and earn more revenues, Companies created another product – a  Mouth freshener that does not contain any addictive ingredients / tobacco – which looks identical to their Pan Masala packet and which can be sold legally on communication platforms. 

Enter Bollywood & Tollywood Stars and their endorsement of “Elaichi flavoured Mouth Freshner”. 

So technically, for a Gutka manufacturer, things are going great from 2020. They are producing Pan Masala & Chewing tobacco – selling them together to the consumer, using surrogate advertising & Bollywood & Tollywood stars as ambassadors. 

This practice – where they are forcing the sale of two products together is what is shielding them from any sort of a future ban on sale of tobacco products. This practice is what is yielding them thousands of crores in revenue. This practice is what is illegal & abusive.

On 18th April, 2025 our team went to multiple Pan-Shops and asked them to give one packet of each and every Pan Masala, mouth freshener and chewing tobacco they are selling. Along with this, we asked a bunch of questions for the sake of research. It was done to understand the pricing of each product, the strategies implemented and the way the products are sold. 

The following table indicates the brand, the company that is manufacturing it, the type of the product and the price at which they are selling it. 

The Pricing strategies adopted by these companies i.e. charging a minimal rate for chewing tobacco packet (Rs. 0.5 or Rs. 1) and a rate of Rs. 10 or Rs. 4,  indicate, in itself, towards the fact that Pan Masala is never to be sold in isolation of Chewing Tobacco. Additional facts, described below, also indicate strongly towards one not being sold in isolation of the other. 

Direct/Indirect Relationship: There is either a direct or an in-direct relationship between Companies that are producing Cheweing Tobacco and Pan Masala. This is either by the fact that one company is a subsidiary of another or by the fact that they are sold by a company that has a similar name / a similar looking brand as the other. 

The way retailers purchase the packets: The retailers were sold these packets together, from a distributor. It is not the situation where a retailer buys Pan Masala Packets belonging to one Company from one distributor and the corresponding chewing tobacco packets from a different distributor. They purchase both the Company’s Pan Masala Packet & the related Cheweing tobacco packet directly from the Distributor of each Company, which they then display in their shops alongside others and then sell it to consumers. 

This practice, wherein the consumer of one product (Pan Masala), through different means (explained in the next section) is being made to purchase another product (cheweing tobacco) is called “tying”. And this practice, in this industry, is an abusive practice & is therefore illegal as per Section 4 of the Competition Act, 2002.

Clarity needs to be provided here. Tying is not an inherently abusive practice. There are pro-competitive advantages to tying in the form of enhanced consumer experience and provision of different products. However, in this industry where we are dealing with products that are injurious to health (both Pan Masala & Chewing Tobacco), the problems created by tying outweigh the benefits of it. 

Firstly, the pricing of Pan Masala & Chewing Tobacco products indicates, very clearly, that the intent is to sell both of them together regardless whether the consumer wants them both or not. This in-itself indicates to the problem of nudging people towards consuming a more harmful & addictive product. 

Secondly, ever since Pan Parag was created and took over the Country by a storm, almost 50 years ago, consumer’s perception evolved to a place where they do not see Pan Masala & Chewing Tobacco as two distinct products (despite the fact that they are). In their eyes, it is Gutka. It is one product. They have internalised the sale of Pan Masala & Chewing Tobacco together. And companies that produce these products are re-instating the narrative by strategically pricing them in a way where they are sold together, & by selling them together. 

The role of companies that are tying these products is massive that it got to a situation where consumers strongly believe that Gutka comes in two different packets & it is they who should mix it up. 

Thirdly, plausible deniability exists for Companies that are selling these products – as they are not the ones who are producing the chewing tobacco packet, it’s another company that is manufacturing the chewing tobacco packet and it is the retailer (pawn-shop owner/agent) that sells these two distinct products together. However, such an acknowledgment of the reason dismisses the very fact that there are (strong) ties between the producers of Pan Masala & producers of Chewing Tobacco. 

Fourthly, to avoid the ban on advertisement of tobacco products, the industry brought in Bollywood stars, created a totally different product, adopted surrogate advertising. To avoid the bans on sale of Gutka, they ended up incorporating different strategies to sell the products both inside and outside of the banned state. 

Fifthly,  The Global Adult Tobacco Survey 2016-2017 (less than a decade ago, when the bans were in place) noted that about 2.9% of India’s population consume Gutka on a daily basis. India’s population at that time was roughly 1.3 Billion, that is 3.9 Crore people consumed Gutka. Even if we were to consider the no. of people that consumed Gutka remained the same (without accounting for the fact that the bans were lifted), the total number of people that consume Gutka today increases to 4.2 Crore (because the population is 1.4 Billion now). This indicates to the fact that at-least 4 crore people consume Gutka on a daily basis. 

Sixthly, experts state that out of all oral cancer cases 90% are because of consuming smokeless tobacco (including Gutka). In 2022, India registered 1.41 Crore lip & oral cancer cases. The figure is set to be higher in 2025. Besides oral cancer other problems like Oral Submucous Fibrosis (OSMF), where tissues of the mouth become stiff and lose elasticity that causes difficulty in opening the mouth, chewing and swallowing; Cardiovascular Diseases, Gastrointestinal diseases, Periodontal Disease (Gum Disease that leads to tooth loss), Tooth Decay, staining of teeth, Halitosis (bad breath), etc.

To put it simply, by forcing consumers to consume both, the companies producing these products are involved in a practice called tying and there exists no objective justification / valid reason for companies that can justify the practice of tying these products together. 

In our opinion, based on all of this, as per the Competition Act, 2002 (Section 4) – this is an anti-competitive practice employed by the entire industry & every company involved in it. It is illegal to tie two products and force it on to the consumers. The entire Gutka industry does anything but.