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Tuesday, January 31, 2023
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State alcohol policies affecting prices, resulting in poor quality

Initial findings of an on-going survey being done by Indian Council for Research on International Economic Relations (ICRIER) has found that  alcoholic beverages, which are governed differently in different states, have impacted the method of calculation of the ex-distillery price (EDP) or the final price of the products, which vary widely across the states, leading to variation in taxes and consequently in final prices of products.Since alcoholic beverages are not under the ambit of single Goods and Services Tax (GST), the states have their own methods of calculating taxes, which are often ad-hoc and non-transparent.

The survey’s findings in the case of whiskey, which has the largest consumption in India and mostly produced in the country, says that for tax calculation, the states have different methods of calculation of the ex-distillery price (EDP).

“They use different terminologies, sometimes they ask for prices of neighbouring states and they do not analyse the consumer demand pattern in their state or take into account the inflation, while fixing the EDP and then calculating the taxes. Many states ask for the minimum EDP while cost of production may vary. Some states like Uttar Pradesh have cess (for example, cow cess),” the findings reveal.

The states through their excise policies control the entire supply chain of alcoholic beverages; from manufacturing and distribution to registration and licensing processes, labelling and packaging requirements, and retail. There are frequent and ad-hoc changes in policies, creating uncertainty and deterring manufacturers/distillers to plan their businesses in advance.

The study finds that this forces the consumers to buy low quality products thereby compromising their health, results in an illicit liquor market and encourages illegal trade from neighbourhood states.

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For businesses, the variations in regulations and operating models across states have led to low ease of doing business. These variations in state excise policies convert India into more than 30 heterogeneous markets instead of a single market. This can act as a challenge for the Central government in trade agreements and negotiations with trading partners such as the EU.

Prof. Arpita Mukherjee of ICRIER says that unlike countries such as Argentina, China or Chile, the survey found that India seems to have ignored the export potential of this sector and its forward and backward linkages in terms of employment creation and investment.

She added that India could have explored its export potential, especially since exports of alcoholic beverages are growing in recent years.

“We found several global best practices in transparent regulations, which can be replicated in India. We are happy to discuss our findings with the state excise departments and support them so that they can earn revenue and at the same time meet their goals of consumer health protection. A transparent and predictable policy will help businesses to expand, make long-term investments, and encourage new business models to flourish. To encourage transparency, the excise departments can focus on adopting a cost based EDP formula and we have suggested best principles and a model framework in our study. This will not only ensure revenue collection for state excise, but it will also ensure a predictable environment for businesses, and this is likely to be acceptable to the EU and other trading partners.” said Prof. Mukherjee.

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The report will be released in July 2021.

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(The above news was originally posted on www.fnbnews.com)

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