India is notorious for the kind of taxes and policy implementation that the country’s beverage industry follows with brands in the segment constantly looking for alternatives to make doing business in the country easier.

As one of the fastest growing beverage markets in the world, yet constrained by government policies and tax systems, etc., India has been a yes and no country for beverage brands/businesses in general. During a session at The Financial Express Boardroom 2022, Chaitanya Rathi, Chief Operating Officer, Sula Vineyards and Prabhtej Singh Bhatia, CEO and Co-Founder, Simba Beer, unanimously suggested that India should abolish ‘ad hoc decision-making practices’ and bring ‘consistency’ in terms of policy’ when it comes to the alcoholic beverage industry.

India is notorious for the kind of taxes and policy implementation that the country’s beverage industry follows with brands in the segment constantly looking for alternatives to make doing business in the country easier. At the same time, no matter how lucrative a segment may be, the barriers here rarely get the upper hand. The country has seen both local and new players emerge in recent years.

What could have been different?

India has different tax and policies in different states when it comes to alcohol and the category, unlike other goods, is not under the purview of the Goods and Services Tax (GST) and thus its revenue goes directly to the state government .

“The ad hoc decisions of the state governments around alcohol make it very difficult for the entrepreneur to have the confidence to set up a business in this segment. In short, any kind of problem – political or macro – it is the alcoholic beverage industry that bears the brunt of it. When there is a budget deficit, the government tries to get more money from the industry, when there is a political discussion, the sale of spirits is banned or restricted. So we are always on the receiving end. I feel like there has to be some kind of consistency. It is better to regulate it than to ban it,” says Chaitanya Rathi.

Meanwhile, Prabhtej Singh Bhatia pointed to the legislation and bureaucratic processes that go through the beverage industry. “At least 70 percent of what consumers pay goes to the state government and while that won’t change, there needs to be more incentive for the industry to launch better and newer options in the interests of consumers. The difficulty here is that the cost of bringing a product to market (bureaucratic measures/policies) is much higher than the cost of making a product. I think there should be some degree of cohesion where India feels like a single country when it comes to alcohol.”

While the country earns huge revenues from the sale of alcoholic beverages, each state has a different parameter of taxation and regulation when it comes to this category. Even during the Covid-19 pandemic, there was a range of newer types of taxes on alcohol, and most of them at different rates. About 21 states had increased excise taxes, maximum selling price (MRP), bottling fees and imposed COVID-19-specific fees, taxes and fees to avoid lost revenue and meet consumer health needs.

In states such as Assam, Rajasthan, Karnataka and Uttar Pradesh, changes were made by increasing the excise plates; while states like Delhi, Haryana, Odisha and Telangana introduced specific COVID-19 related taxes/fees. The effect on the final prices of the products ranged from 5-25 percent; except in Delhi, where prices initially rose by 70 percent due to the imposition of a special corona levy of the same percentage.

With such uncertainties, the beverage industry also has “little investor interest.”

However, what works?

While there are many hurdles, alcoholic beverage companies have made their way into the domestic market, with many homegrown brands having carved out a niche for themselves in the segment. Sula Vineyards and Simba are two mainstream brands that even offer international markets. “Sula already exports to 20 countries. However, I feel there is more to offer and better profits to be had in the vast Indian market than on exports,” said Chaitanya Rathi.

Also, the power of digital media is helping the segment grow in more ways than one. Unlike before, drink brands can now advertise their products through digital media, social media channels, etc. While it has worked for Sula for its ‘vineyard visits for wine tasting’, Simba has mainly dealt with word of mouth and social media posts by its consumers. “Music festivals, events, etc. have been working very well for us lately, alongside digital platforms,” says Prabhtej Singh Bhatia.

Online delivery is another experimental area for spirits brands in India where many states have allowed ‘online delivery’ of alcoholic drinks but in the future they are yet to allow ‘online sale’ of these drinks.

In addition, the beverage industry leaders also talked about measures that could help Indian consumers become a more aware and aware drinking population than they are today. India has a major burden of alcohol use disorder. According to a report by the Ministry of Social Justice and Empowerment (MoSJE) of India, every third alcohol user in India needs help for alcohol use problems and only about 1 in 38 people with alcohol dependence report receiving any treatment or assistance.

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