Indians consumed 15 percent more alcohol in 2022 than last year. But while alcoholic beverage manufacturers are happy with the volumes, they say rising input costs and strict regulations spoil the party.
Key raw materials like glass, ENA, barley and mono cartons have seen prices rise between 12 and 47 percent over this fiscal year. This puts margins under pressure even though sales volumes are higher — because most state governments have not allowed companies to hike prices.
Nita Kapoor, CEO of the International Spirits & Wines Association of India, said, “There are states where we haven't received a price increase for five years in a row. If all direct materials are in more than double-digit inflation, then the margins have come under a lot of pressure, which means I am unable to sustain the operations in a state.”
Some states like Madhya Pradesh, Punjab, Uttar Pradesh, and Maharashtra have allowed companies to hike prices in specific segments — companies say this is not enough to offset inflation. More pricing freedom, they say, is vital.
Shekhar Ramamurthy, Executive Deputy Chairman at Allied Blenders & Distillers, said, “While we have got price increases in some of the states, it's not all over and not across the portfolio. We are hopeful that some other significant states like Telangana will give us a price increase.”
“One of the models being put across to states is, why don't you look at an FMCG sector, which works and calibrates the basis of its price the inflation it faces, and has the freedom to charge a price to the consumer,” Kapoor said.
Companies also argue that more pricing freedom will benefit states since alcohol contributes 25-40 percent of revenues for most states. Different states levy different taxes and duties on the making and selling of alcoholic beverages... which also vary depending on the type of beverage. This situation makes life tougher for some manufacturers than others.
Kartikeya Sharma, President of India & SEA at AB InBev, said, “There are still many states who are keeping the difference between taxes on beer and spirits quite unfairly high on beer, which is keeping the category quite muted, versus its potential. The alcohol category is taxed by volume, not by alcohol. And so whether I have 4 percent alcohol by volume or another product has 48 percent alcohol, the tax rates are not different. So that puts more burden on beer manufacturers because their margins are not commensurate with the kind of costs that have gone in.”
There are also different licensing requirements, restrictions on advertising and strict rules governing retailing — including, in some cases, a ban on online sales and home delivery.
Alcohol policies in India are largely governed by a combination of wanting to maximise state revenues while meeting moral and social obligations to educate people about the adverse effects of alcohol consumption. But the industry is confident that a better balance can be struck... and is hopeful that its ongoing discussions with state governments will allow growth in both consumption and profitability.