The price of liquor in one of the country’s largest markets, Karnataka, will rise this month when an additional excise duty hike of 20% on alcohol takes effect. The move comes just before the holiday season, when alcohol consumption rises, according to market watchers.
Companies such as United Spirits (USL), the country’s largest liquor maker, have warned that the tax hike will result in a 14-17% price increase of its brands in the state. This will hurt demand, the company, which makes popular labels such as McDowells No. 1 and Royal Challenge, has said.
“Duty increase (of 20%) in our home state (of Karnataka) is not very welcome, given the fact that duties are already on the higher side and demand is under pressure,” Hina Nagarajan, MD & CEO, USL said in the firm’s latest investor call.
“MRP (maximum retail price) of our brands will go up in the range of 14-17%. So, they will become even more expensive,” she told analysts, adding that this would have a negative impact on the market. Most other manufacturers including Pernod Ricard, John Distilleries etc are also expected to take a similar price hike. McDowell’s No.1, for instance, which now costs `914 for a 750-ml bottle in Karnataka may cross the Rs 1,000-mark for the same size, according to industry sources. A 750-ml bottle of Royal Stag from Pernod Ricard in the state will likely cost Rs 1,591 from Rs 1,360 now, a jump of 17%.
For perspective, Karnataka contributes 18% of the country’s total alcohol or Indian-Made Foreign Liquor (IMFL) sales of 385 million cases, according to industry estimates. One case contains twelve 750 ml bottles. USL, Pernod Ricard, Inbrew, which makes Haywards whisky, John Distilleries, which makes Original Choice, and Amrut Distilleries are among the key players in the state, accounting for around 80-90% of alcohol sales.
Speaking to FE, Vinod Giri, director general of the Confederation of Indian Alcoholic Beverage Companies (CIABC), an apex body of liquor firms in the country, said the additional excise duty hike in Karnataka will see consumers either downtrading or buying alcohol from neighbouring states.
“Consumer prices (of alcohol) in Karnataka are already very high. I think further increase, and that too to that extent, is going to hit sales. We may see consumers down-trade for cheaper alternatives. There is a possibility of unlawful import from neighbouring states given Karnataka’s porous borders,” Giri said about the market impact.
Most liquor companies are concerned that alcohol from Telangana, where excise tax has just been lowered by 5-7% across slabs, may make its way into Karnataka to compensate for the state’s pricey liquor.
As things stand now, several state governments depend on alcohol for their revenue. According to industry estimates, more than 50% of the retail price of alcohol goes to state and central governments by way of value-added tax (VAT) and excise duty. The excise revenue from liquor sales in Karnataka was around Rs 30,000 crore in FY23. The state expects this number to go up with the increase in the tax rate.
The above news was originally posted on financialexpress.com
