Kurush Grant, Divisional Chief Executive of ITC, said, “In the last two years, several increases in excise duties and by regional governments in the form of VAT has resulted in the industry declining, let alone be flat.”

But now, Grant, the divisional head of India's largest cigarette maker ITC, can finally breathe a sigh of relief as for the first time in five years, there has been no increase in taxes on cigarettes.

And ITC, whose volume growth has been falling over past two years, now expects a revival in demand.

“The stability of excise rates, we believe is a good thing for the cigarette industry. This should help the conversion rates from lower revenue products to cigarettes,” Grant said.

No wonder on a day when Sensex closed just a per cent up, ITC's shares shot up 7 per cent.

But the worry isn't over yet. The cigarette makers had earlier raised prices by 5-8 per cent thanks to Maharashtra and Delhi hiking taxes.

With more states like Rajasthan and Punjab to announce their budgets, analysts feel more tax will be levied on cigarettes and ITC would rather wait and watch.

“We will really have to see all the states budget before we can get a firm assessment of what the taxes increase on are this category this year,” Grant said.

So, it's a fine balancing act. Liquor and cigarettes have always been the favourite whipping sectors during union budgets as they are a significant source of revenue.

So, both the companies and the government will see to it that this revenue generator doesn't go up in smoke so easily.