Active Stocks
Wed Jun 19 2024 15:54:35
  1. HDFC Bank share price
  2. 1,658.00 3.06%
  1. Tata Steel share price
  2. 180.05 -0.61%
  1. State Bank Of India share price
  2. 852.60 0.95%
  1. ITC share price
  2. 423.70 -1.19%
  1. ICICI Bank share price
  2. 1,144.75 1.93%
Business News/ Companies / News/  Tax troubles: The roadblock in India’s beer market boom
BackBack

Tax troubles: The roadblock in India’s beer market boom

Retail licensing rules and fees in India also do not differentiate between low-alcohol products like beer and high-alcohol content products, thereby hurting sales

In India, taxes on spirits are based on total volume of the spirit rather than alcohol content. (Image: Pixabay)Premium
In India, taxes on spirits are based on total volume of the spirit rather than alcohol content. (Image: Pixabay)

India's beer market has stagnated over the years despite significant growth potential, largely due to inequitable taxation and restrictive retail licensing rules. 

In India, where the beer market accounts for just 1% of global sales, taxes on spirits are based on the total volume of the spirit rather than alcohol content, unlike in most other countries. This is the biggest deterrent, said spirits industry expert Vinod Giri, director general-designate of the newly formed industry association, Brewers Association of India.

This effectively means that low-alcohol content products like beer are "penalized" making it more expensive than stronger spirits in real terms, Giri said.

For instance, a one-litre bottle of beer with 5% alcohol content is taxed the same as a one-liter bottle of whiskey with 40% alcohol content because the tax is calculated per litre. Consequently, beer, with its lower alcohol content, becomes relatively more expensive compared to stronger spirits like whiskey, he said.

In 2023, the beer market grew 6.5%, with sales reaching over 31 million hectolitres, or about 400 million cases, according to Giri, who is also the outgoing director general of industry body Confederation of Indian Alcoholic Beverage Companies (CIABC).

Giri said there is a stark contrast when compared with other countries. For instance, China sold 420 million hectolitres in 2022 compared with a mere 29 million hectolitres sold in India. The US sold 204 million and Brazil 149 million. Even countries like Vietnam sold over 50 million hectolitres that year.

According to data from drinks consultancy IWSR, beer market in India has been growing at a volume CAGR of about 3% between 2022 and 2027.

Licensing rules & fees

Retail licensing rules and fees in India also do not differentiate between low-alcohol products like beer and high-alcohol content products. This is despite the complexities and higher costs associated with beer distribution, such as cold supply chains and limited shelf life, according to Giri.

Globally, governments shape regulations to shift consumers towards lower-alcohol products like beer, but in India that’s yet to happen. "Such a move, if made, will not only unlock the beer potential in the country, but also go a long way in encouraging moderate and responsible alcohol consumption," he said.

Also read: Beer battles election blues, gin toasts summer gains

Meanwhile, three of the country's largest beer-makers, United Breweries (a Heineken company), AB-InBev, and Carlsberg India Pvt. Ltd have jointly announced the launch of this association on Wednesday to grow the beer category in India.

The three businesses together account for around 85% of the beer sales in India. These companies also have significant investments in India with Carlsberg operating seven breweries, United Breweries 19 breweries and AB-InBev India 10 across the country.

The association will have a partnership with the World Brewing Alliance (WBA), a global industry body consisting of brewers and brewing trade associations from Australia, Brazil, Canada, and Europe.

"Beer is almost completely an agricultural product, brewed from barley and other locally sourced ingredients. It supports a robust local supply chain with a significant economic footprint and sustains farmers of millets and other cereal grains, many of which are grown in areas with dry, arid conditions," he added.

“We will collaborate with the government, brewers and farmers for the growth of barley production, a key ingredient in this ‘Made in India’ local, natural product."

Kartikeya Sharma, president of AB InBev India, added that there were many barriers to the growth of India’s beer industry, including "inequitable taxation, accessibility issues, and the ease of doing business and in the potential of the Indian beer industry".

Also read: As India braces for a hot summer, beer makers have much to cheer

“This is our joint commitment to accelerate the category growth of the beer industry in India," Vivek Gupta, managing director and CEO of United Breweries Ltd, a Heineken Company. "Together, the industry can help shape policies promoting responsible choices for consumers around moderate alcohol beverages, a robust taxation and regulatory framework and promoting investments for socio-economic benefits."

Dolf van den Brink, chairman of the executive board and CEO of Heineken, UBL's Dutch parent, who spoke with Mint recently, had agreed that the country's beer market, for about the last decade now, had nearly stagnated at around the 400 million cases a year mark.

“There have been historical reasons for that, including regulation and state-to-state duty problems. But I think the biggest thing that will drive a future growth is the development of the Indian middle class in the big metropolitan areas," he said.

"There are also a lot of smaller entrepreneurs launching local craft brands which is a very good thing. This is going to really propel the category. India had escaped a major impact from geopolitical issues like raw material cost inflation because of its local sourcing," he said.

The company had also put in “massive investments" into the domestic beer market and invested over 8,000 crore in the recent past to build more capacity.

Read More: Ditched by the rich, vodka needs a new spirit

 

 

3.6 Crore Indians visited in a single day choosing us as India's undisputed platform for General Election Results. Explore the latest updates here!

ABOUT THE AUTHOR
Varuni Khosla
Varuni serves as a Senior Assistant Editor at Mint. Her responsibilities encompass crafting compelling narratives that take a deep dive into hospitality companies, the business of art, luxury brands, the intricacies of the business of sports, advertising and marketing landscapes, gaming insights, tourism and travel industry trends. She also covers alcohol commerce. She is skilled at communication, meticulous research, and insightful analysis keeping contemporary shifts and advancements within the lifestyle and business domains at the heart of her work.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 29 May 2024, 01:06 PM IST
Next Story footLogo
Recommended For You