The main objective of this paper is to analyze the pattern of tobacco consumption and its health implications in India. We use various rounds of National Sample Survey for this purpose. The paper finds that, though there is a reduction in tobacco consumption in the form of bidi and cigarette in India as a whole, this decrease is compensated for by an increase of pan consumption in rural India. It has also been observed that the consumption of tobacco is more among the poor in India and we argue that the consequent higher health care spending arising out of tobacco related diseases leaves them economically worse off. Thus the paper concludes that, apart from the economic gains that tobacco industry is generating, tobacco use also imposes burden, especially on users, in the form of numerous tobacco related diseases and high health care spending. This, coupled with the fact that the investment on health by government is declining over the years, has the potential to trap the poor in a vicious circle of poverty and ill health. Hence government policy needs to be targeted towards an effective control of tobacco use.