After a two-year hiatus, liquor manufacturers are preparing for a post-Covid era in which they expected healthy sales. However, rising inflation, states’ reluctance to cap state taxes, and increasing prices for raw materials could end up hurting the liquor industry to the extent that their margins, which were already under pressure, will get squeezed even further.
Increases in the sales of alcoholic spirits have a direct and positive impact on the budgets of state governments across the country. However, a negligible portion of such expansion is observable in terms of value for the alcohol manufacturers. Because of this, the operations of the industry are becoming unsustainable as state taxes on liquor indexed to MRPs (Maximum Retail Prices) range from 60 per cent up to 80 per cent. Excise taxes bring much money to countries’ treasuries worldwide. According to several different estimations, the contribution of the alcohol sector to India’s GDP is about 1.5 per cent.
Most companies that produce alcoholic beverages believe that sales during the current season of festivals will accurately indicate how well they have been able to negotiate the speed bumps in their industry. The sales increased by 17-18 per cent during the previous calendar year, primarily due to a low base. This time the liquor industry is expecting to recover its volumes to pre-pandemic levels.
Traditionally, India’s sales have had a healthy uptick throughout the festival season, which begins in October and continues until March. Post the pandemic the dominant trend being noticed is that customers are choosing products with better quality and excellent value, thereby demonstrating an uptick in demand for premium goods. In recent years, India has been experiencing a retail paradigm shift due to a modification in the route-to-market strategy and the introduction of browsable stores.
The current alcohol policies of the Indian government are an exercise in striking a balance between maximising tax revenue and mitigating the adverse effects of alcohol consumption. This is accomplished through implementing policies such as stricter regulation, outright prohibition, and regressive taxation.
Over the years this balance has shifted as states’ tax share of MRPs are as high as 60 to 80 percent. Liquor manufacturers are seeking states to correct this anomaly through an inflation-based model that takes into account the raging inflation being witnessed in most direct materials this year – ENA at 16 percent; Glass at 36 percent; Outer cartons at 24 percent; Mono cartons at 36 percent.
By Nita Kapoor. The author is CEO of the International Spirits and Wines Association of India (ISWAI)