India is the third largest producer of tobacco in the world after China and USA. Though it occupies a mere 0.25 per cent of the cropped area in the country, it contributed Rs. 507 crores to the foreign exchange earnings and Rs. 3200 crores to the exchequer by way of central excise during 1992-93. Further, it provides employment to millions of people both directly and indirectly. Despite playing such a vital role in the economy the industry faces many constraints for its development. Increasing productivity, improving the quality, better marketing practices of non Virginia tobacco and a more rational excise policy on cigarettes would help the growth of the industry as well as meet the challenges of the future.