High taxation is breaking the backbone of the alcoholic beverage industry in the country, the International Spirits and Wines Association of India (ISWAI) has said.
Taxation accounts for 67 to 80% of the prices of alcoholic beverages, leaving little for suppliers and traders to sustain and manage their operations, the association said in a statement on Thursday.
“The Indian alcoholic beverage industry is in deep crisis due to inflation on one hand and high taxation on another. Unless swift action is taken to reverse the situation by decreasing taxes or increasing the product prices, India could soon be facing a situation that will be akin to killing the proverbial golden goose,” Nita Kapoor, ISWAI’s chief executive officer said.
Unlike most other industries from automobile to pharmaceuticals, the alcoholic beverage industry has suffered from the lack of pricing freedom, she said.
“Although the liquor industry has historically contributed 25 to 40% of the revenue for State governments, higher taxes without price hikes is pushing the industry into a crisis,” she added.
Comparative advantage
Liquor manufacturers said India has a comparative advantage in production because of the ready availability of raw materials such as molasses and grains. But the country needs to overhaul its policies to encourage greater production volumes for exports, they said.
The Indian alcoholic beverage industry employs 1.5 million people and has an estimated market size of $52.5 billion (2020), the ninth-largest in the world.
“Gross margins for makers of Indian Made Foreign Liquor during the quarter ended September were lower compared to the same period a year ago due to higher cost of ingredients,” Suresh Menon, secretary-general of ISWAI said.
According to the ISWAI, alcoholic ingredients such as extra neutral alcohol and barley have been 12% and 46.2% costlier this year than in 2021. Similarly, the cost of packaging material such as glass and mono cartons rose by 24.9% and 19% respectively.
“The paring of taxes at both the Central and State government would go a long way in helping the beleaguered alcoholic beverage manufacturers in India,” Mr. Menon said.
