The market for alcoholic beverages was expected to be worth USD 1.58 trillion in 2020 and is anticipated to expand at a CAGR of about 3.5% between 2020 and 2023. With a projected market size of USD52.5 billion in 2020 and an anticipated CAGR of 6.8 percent between 2020 and 2023, India is one of the fastest growing alcoholic beverage marketplaces in the world. Given this background, Neeraj Sachdeva, the director of Lakeforest Wines, provides an overview of the Indian alcoholic beverages market, highlighting market trends and contributions of the sector to the economy.
The alcohol industry is open to foreign investment with many state governments (like Maharashtra and Karnataka for wines) providing subsidies for domestic manufacturing. “The demand for alcoholic beverages has risen as a consequence of factors on the supply side including quick urbanisation, shifting consumer preferences, and a sizable and expanding middle-class population with rising spending power,” informs Neeraj Sachdeva of Lakeforest Wines. He adds, “In most states, alcoholic beverages rank among the top three revenue-generating industries. However, it appears that the tax system lacks transparency, predictability, and clarity to ensure that the government's other goals, such as ‘Make in India’ and exports from India, are aligned with the goal of revenue generation.”
To safeguard the health of consumers, more than 78 nations have implemented price limitations on alcoholic beverages through an increase in excise taxes since 2010. However, alcohol consumption is price inelastic both internationally and in India, suggesting that increasing prices may not discourage usage. Governments can therefore direct consumers toward reduced intake and higher quality consumption through the implementation of the appropriate legislation. Such regulations should be created using substantial data modelling and in a transparent manner by citing instances of regulations from other nations. This will safeguard the health of consumers while also generating income for the government and promoting exports.
Neeraj Sachdeva of Lakeforest Wines states that during the COVID-19 pandemic, to avert a revenue gap and address consumer health concerns, about 21 states have increased excise duties, additional excise duties, maximum retail price (MRP), bottling fees, and imposed COVID-19 specific fees, cess, and surcharges. With the exceptions of Maharashtra and Madhya Pradesh, 8 of the 10 states that were chosen for the report have implemented such taxes and levies. State-specific COVID-19-related cess/fees were put into place in states like Delhi, Haryana, Odisha, and Telangana, while excise tax slabs were raised in Assam, Rajasthan, Karnataka, and Uttar Pradesh. With the exception of Delhi, where prices initially soared by 70% as a result of the imposition of a special licencing charge of the government, the impact on final pricing of the products ranged between 5 and 25%.
“The state excise departments should establish clear regulations at regular intervals of two to three years so that firms can grow, make long-term investments, and promote the development of new business models,” suggests Neeraj Sachdeva. The excise departments should prioritise adopting a ‘cost-based’ EDP formula above the ‘minimum EDP’ criteria in order to promote openness and assess the effects of price changes on the efficacy of taxing policy across various beverage categories including premium, standard, etc.
Furthermore, the state excise departments should move to digital means of issuing licences and permits so that unauthorised transactions and unethical behaviour are avoided. The states must use data analytics and technological solutions to track the supply chain and create front-to-back traceability. To follow the movement of goods from the manufacturer to the distributor to the retailer, technology-driven tracking and tracing programmes should take the role of physical monitoring. This can be especially helpful in case of inter-state movement, where there are chances of illegal sourcing of liquor.
Neeraj Sachdeva of Lakeforest Wines says, “To begin a process of transparent, foreseeable, and consultation-based price decision, state excise commissioners, finance ministers, and other stakeholders should undertake regular in-depth conversations. And, to improve the trade balance, the government should concentrate on gradually reducing tariffs and other charges, and Indian businesses should be encouraged to export.”
In conclusion, putting these suggestions into practise can aid state governments in achieving their goals of increasing revenue, resolving consumer health issues, and generating employment. Technology adoption can eliminate inconsistencies throughout the whole supply chain with minimal government involvement. It could aid India in attracting more investments into the industry, promoting innovation, enhancing ease of doing business, boosting local manufacturing capacity, and boosting exports.
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