A conversation with Anand Vijay Jha, a former regulator, who has switched sides to head public policy at United Breweries. He talks to Freny Patel about taking on the challenging task of changing the negative social perception of alcohol among policymakers in India’s 28 states and convincing them to tax beer at a lower rate than hard liquor
Meet Anand Vijay Jha, head of public policy at United Breweries, a company known best for its famous Kingfisher beer.
A lawyer by profession, Jha is no stranger to policymaking and execution, having worked with various ministries, departments and regulatory bodies, including as additional director of investigations at the Competition Commission of India (CCI).
Armed with his investigative expertise, and an understanding of regulators and the challenges in their thinking, Jha has been working to bring about much-needed policy change and predictability in the alcoholic beverages industry.
Trouble is always brewing in India’s liquor industry, challenged by high taxation, double standards and unfavourable government policies. That’s especially so when it comes to beer because each of India’s 28 states have their own set of regulations.
Spearheading public policy and government relations among his various key responsibilities, Jha tells India Business Law Journal’s Freny Patel that he has already seen a transformation in the mindset of some state governments when advocating a policy change based on evidence. After all, it is a tightrope walk for state governments having to balance the need to raise revenue through excise, while at the same time, not wanting to be perceived as promoting liquor.
Q. After two decades in government service, what made you decide to join the private sector?
As a policymaker and executor for two decades, my canvas was quite broad. I worked in transportation, supply chain management, land conveyancing, national security and capacity building of civil servants. As an antitrust regulator, I investigated several Fortune 500 companies. My inquisitiveness for understanding the business decision-making process from inside kept increasing. I wanted to work in the private sector as a policy influencer and create a more equitable playing field. However, my dilemma while switching to the private sector was the image formed as a public servant that the private sector is focused on profit and could do things that are not ethical. The solution I reached is that I should only join a company known for its ethical ways of doing business. That is how I chose Walmart because it is recognised globally for being ethical.
Later, when due to the multi-brand foreign direct investment policy restriction and increasing competition in the retail sector, Walmart decided to consolidate its business to Flipkart and exit the Indian market, I had to take another call. There was an opportunity to join Flipkart, which is a leading ecommerce player in India. However, as a public policy professional, I assessed that I was keener to learn more about the state level policy challenges thus making alcobev a natural choice. I was looking for a larger canvas, and the opportunity came in this industry, which I realised was full of regulatory challenges.
Q. You moved from the antitrust authority to retail and then to the alcobev sector, wanting to be more engaged or to influence evidence-based policy. How do you propose to do that when the sector does not have an evidence-based approach?
I agree that this approach has not been tried systematically in this sector, therefore one has to create the requisite evidence after studying the sector and come up with facts, figures and economic models for meaningful advocacy in the key areas needing government support. You have to let the policymakers know that there is the price elasticity of demand. So, if the government continues taxing beer unreasonably, over time the demand will start falling and excise revenue from it will dry up. There is tremendous scope for evidence-based policy in our engagement with the government and stakeholders. For instance, as the percentage of alcohol in beer is less than hard liquor, the absolute taxation policy should reflect this.
Q. And how has your experience at CCI helped you with your current role?
If you look at competition law, it is less law and more economics. Regulators especially when they operate from a purely legal lens tend to be overzealous, and at times fail to understand the underlying business economics of running an enterprise in a competitive environment. There is a very thin line when it comes to pricing strategy, or pricing coordination, or cartelisation.
For instance, if a competitor prices its product at INR200 (USD2.70), what option does a competitor with a similar product have but to price its product comparably? Otherwise, it can never get a market share. An overzealous regulator blinded by the lack of evidence and misled notions may assume it is cartelisation. But to me, it is pure economics and a business-led decision.
The biggest advantage of having worked at the competition authority is my understanding of how regulators think, being a regulator myself, and the challenges in their thinking. So, in the process of trying to advocate a policy change to the government based on evidence, and we form a coalition to discuss the issue, where our competitors are also present, this should not be viewed as cartelisation. This is because broad-based evidence of business realities in a specific sector cannot come from a single player.
Q. Liquor being a state-wise subject, can you shed some light on the key challenges you face as you approach different states?
India has many taboos around liquor and all three players face challenges. This includes manufacturers, state policymakers and the customers. Challenges can sometimes be at cross purposes.
One of the challenges state governments face is that they want to raise revenue through excise because that is their main source of income. At the same time, they do not want to be politically incorrect, to be seen as promoting liquor. Then there is the political fallout as the opposition might make mileage out of criticising the government for even taking the right step. So, it is a tightrope walk for the state regulators.
On the manufacturers’ side, the key challenge emanates from customer decision-making behaviour. There are many social taboos around drinking. Unfortunately, most customers’ understanding of alcohol is to get drunk. Hence, beer with a low alcohol content as compared to IMFLs (Indian-made foreign liquor) is not the preferred drink. This is because of the skewed excise and taxation policy, which leads to a situation where beer with a 5% alcohol content is taxed at twice the rate of hard liquor. There is no rationality in pricing because of taxation, which results in irresponsible consumption. Our biggest challenge in the area of the promotion of beer is the rationalisation of excise duty, vis-à-vis hard liquor. Once the taxation policy is rationalised, it will promote responsible drinking. Moreover, it will change social drinking behaviour from getting drunk to enjoying a mild alcohol-based drink with friends and families like they do in other developed economies.
Q. Can you shed some light on the response to your engagement with state governments?
In the past, the alcobev industry has not been very forthcoming in sharing with the government on what the road ahead should be and why. Hence asking for free pricing or absolute taxation on alcohol for promoting more accessibility has been a common demand for quite some time. State governments are quite open. However, it is a new experience for them. In our engagements with the state governments, we have shared why the taxation of beer needs to be rationalised vis-à-vis IMFL, the need for more retail shops for better and safe access; and the need to permit home deliveries/e-commerce. There is a crying need for all alcobev industry players to come forward with evidence-based, process-driven engagement with all stakeholders, which includes policymakers.
Q. Has the entry of foreign players, the likes of Heineken, Carlsberg among others, made a difference to the mindset of local manufacturers?
Indeed yes. If you look at these international players, whether Heineken, Carlsberg, or AB InBev, they are very old companies with a huge amount of experience. They have gone through a lot of processes and stages, which Indian companies are currently going through. There is a great scope for taking advantage of the learning curve. When I look at UB Group taking advantage of the practices Heineken has adopted, such as environmental, social, and corporate governance (ESG), there is a lot to learn, customise, and adapt to Indian conditions. It is well established that if the company is transparent, socially engaging, and responsible, it directly impacts business because the young generation connects better to these businesses on account of shared values. There was initially the fear that international players would disrupt the market. But their entry has helped strengthen United Breweries, which with its superior product and understanding of Indian
customers, increased its market share.
There are multiple factors at play here, including the cost factor. But it is also about the taste. Most beer manufactured in Europe is bitter, which is not necessarily to the liking of Indian customers. There is something inherent about the country-specific taste, which explains why tequila is popular in Mexico or vodka in Russia. That competitive advantage is there for us to build upon while learning and adapting their best practices to ensure we stay ahead of the curve. With Heineken supporting us, we believe we have the right mix.
Q. There was talk of allowing the sale of alcohol through e-commerce. I believe some states have allowed it, while others have not. Has that been a challenge given the current pandemic?
Some states like Maharashtra have allowed it, and there is a forward-looking policy in West Bengal and Orissa. The covid pandemic has been a challenging situation and, as an Indian company, we would like to get back to business. It would benefit the ecosystem if the excise department and ministry of commerce and industry had a deep-rooted and structured engagement with each other. As an industry player, we are trying to remove these silos by sharing information with state ministries, some of which are more open than others.
One of the greatest advantages of e-commerce is that it addresses all the key issues of policymakers. This includes the sale to those of legal drinking age and the sale of liquor post excise duty. E-commerce offers complete transparency in terms of visibility and tracking. Of course, there are the inherent dichotomies where most liquor stores in many states are bought and sold by state corporations, which might feel threatened or insecure that they may lose their market share if states opt to sell liquor through e-commerce.
The government has to understand what is in the best interest of the country in terms of the health of citizens. If you are agile and ready to adapt, then there is no reason that e-commerce will finish you off. State-trading corporations should promote e-commerce. It will facilitate transparency and traceability in sales, and do away with anticompetitive behaviour in limiting the number of retail outlets, thereby building entry barriers.
Q. Can you identify which states are more forthcoming after your interactions?
States like Karnataka, Maharashtra, Orissa, Rajasthan, Tamil Nadu, Telangana, and Uttar Pradesh are doing a good job. Especially in terms of stakeholder engagement.
They are not shying away from adopting effective stakeholder consultation on policymaking with industry players, which is the first big step in understanding the sector.
I would rate Maharashtra above all others because it realised the critical difference between beer, wine, and hard liquor. It set up 5,900 additional shops solely to sell beer and wine, promoting beer and wines with mild alcohol content, distinct from the existing IMFL liquor stores. It is a very positive step in promoting responsible consumption of alcohol. We share the Maharashtra example with other state governments, many of which are receptive to the idea. It serves the twin purposes of promoting responsible consumption while ensuring a steady flow to state revenues.
Q. What are the challenges in policy advocacy and what can policymakers do to help businesses?
One of the biggest issues in developing policy predictability is building trust between the government, the market players, and the consumers. Trust-building is a process that is completely dependent upon structured, transparent engagement with stakeholders; evidence-based policymaking; and stakeholder consultations. The government has taken multiple steps for structural reforms and stakeholder consultation. Now the need is to get some positive results.
Each time the government decides to change policy, it should reach out to the industry for feedback and suggestions. Likewise, when the industry decided to do something new, they should consult the government. Transparency and trust will help policy predictability in India.
The above news was originally posted on law.asia
