With change in demographics, improvement in standards of living and higher disposable incomes, the annual consumption of alcoholic beverages in India would reach 16.8 billion litres by the end of 2022 from 5.94 billion litres in 2018, according to the estimates of an independent market research report. The Pahle India Foundation report on Ease of Doing Business, however, points out that the alcoholic-beverages industry in the country faces a myriad of restrictive policies and complex, excessive regulation.
The report said that despite the growing significance of the sector since 1990s, its potential to generate revenues for the states, and the recent importance given to improving Ease of Doing Business in India, the industry is rarely awarded the same importance that other manufacturing sectors get. Budget estimates for the total excise revenue generated by the alcoholic-beverages industry alone in 2019-20 is to the tune of Rs1.4 lakh crore, an increase of 15 per cent from last year’s revised estimates.
Moreover, being a state subject, the industry has to deal with multiple authorities to get a large number of clearances to do business. “Different tax regimes, price determination models, regulations and levels of openness have resulted in India having 36 different markets for alcohol, instead a unified one,” said the report, examining business practices of 10 states.
Not having a uniform tax structure also hampers Ease of Doing Business as the sector continues to be taxed according to the previous tax regime. The study points out that many a time, state governments hike taxes to fund their other initiatives. “State excise departments have two major objectives while formulating their excise policies — to curb production, sale and consumption of illicit liquor; and to maximise their revenues. Frequent and ad hoc hikes in duty make it difficult for manufacturers and distillers to plan business, owing to uncertainty in cost of production. Continuity in policies is key to ease of doing business,” it said.
Price determination by state governments continues to be a major roadblock. In this respect, India is an outlier; all countries impose regulations on this sector, but barring India, no country demands price hikes (and cuts) have to be approved and granted by states, the report notes.A large number of time-consuming license requirements, most of them being done manually and offline, are impacting functioning of the business. For example, a production unit in Maharashtra needs to obtain over 10,900 licences annually from different agencies to do business.