‘Developing Principles for Regulation and Pricing of Alcoholic Beverages Sectors in India’ by ICRIER and PLR Chambers

by Suman Gupta

• The first of its kind report provides how states can implement transparent policies through use of technology.

• It provides a model for taxation for the state governments that is based on evidence and data and can be customised to meet the objective of different states

• Alcoholic Beverages are among the top three revenue earnings sector of the State.

• In Karnataka, the registration and licensing processes are manual, and the lead time is 40-45 days, which can be 7 days if processes are automated.  

26 July, 2021, Bengaluru – The Indian Council for Research on International Economic Relations (ICRIER) and PLR Chambers have published a report entitled ‘Developing Principles for Regulation of Alcoholic Beverages Sector in India’. The report was released by Mr. Pramod Bhasin, Chairperson ICRIER, and the release was followed by a panel discussion on “Doing Business in India: Regulation & Pricing of Alcoholic Beverages”, by eminent panelists including Mr. Rajiv Mehrishi, Former Comptroller & Auditor General of India, Ms. Nita Kapoor, CEO, International Spirits and Wines Association Of India (ISWAI), , Dr. Sudipto Mundle, Senior Adviser, National Council of Applied Economic Research (NCAER), Mr. Vinod Giri, Director General, Confederation of Indian Alcoholic Beverage Companies (CIABC), and was moderated by Mr. Suhaan Mukerji, Managing Partner, PLR Chambers.

Based on a primary survey and analysis of the State Excise policies and collections, this report found that in most states including Karnataka, implementation of registration and licensing policies are still manual, despite a call for Digital India. In Karnataka, the registration and licensing processes are manual, and the lead time is 40-45 days, which is one of the highest among the 10 states studied by the research team. This can reduce to 7 days if processes are automated.

Releasing the report, ICRIER Chairperson, Mr Pramod Bhasin, pointed out that “the State Excise Departments should switch to on-line system of registration, licencing and permits. Digitalisation can help in better and transparent monitoring of the entire revenue collection process. Data analytics and technology-based solutions need to be adopted to monitor the supply chain and to establish traceability. This will help to address leakages and lead to higher revenue collections.  Innovative start-ups can be roped in for 1-2 such pilot projects.

The Report highlighted that most states in India through their excise polices regulate the entire supply chain of alcoholic beverages – from the number of manufacturers, wholesalers and to the number of retailers to be allotted licences and what product they can sell at what prices. Further, the state determines the location of the retailers. The legal drinking age differs across states, varying from 18 to 25 years. Every State have their own format for “don’t drink and drive”, which adds to the labelling cost.

Dr. Deepak Mishra, Director & CE, ICRIER said: “Excessive, unpredictable and opaque regulations and tax policies have contributed to high cost of doing business in India’s alcoholic beverages sector. By analysing the best practices at home and abroad, this report makes five broad policy recommendations: develop transparent and predictable policies, focus on technology-enabled interventions, enhance the use of data-driven models, engage in regular consultation with stakeholders, and implement phased reduction in tariffs.”

Karnataka is one of the best in terms calculating the ex-distillery price (EDP) for the whisky, as it follows a free pricing policy. Under the free pricing mechanism, for whisky, the manufacturers are required to submit ex-distillery price (EDP) or cost cards, but the state department does not intervene in the methodology or computation of whole or part(s) of the cost card. The state also offers various incentives for wine production, but the production and exports are below potential. The report provided various recommendation to states so that they can meet their revenue collection goals, protect consumer health and export.

The report found that India is one of the fastest growing markets for alcoholic beverages globally, with an estimated market size of USD52.5 billion in 2020. The market is expected to grow at a CAGR of 6.8 per cent between 2020 and 2023. Production of alcoholic beverages increased by about 23.8 per cent during the period between 2015-16 and 2018-19 and the sector contributed to around 1.5 million jobs and generated around USD48.8 billion in sales revenue in 2019. Yet India is unable to become a large exporter like Chile, Argentina or China.

The report suggested how state governments can learn from global best practices. This report provides a model for taxation for the state governments that is based on evidence and data. In addition, the report also recommends customising global best practices to suit the requirements of the respective states to develop a predictable and transparent pricing model that will enable the government to meet its objectives of earning higher revenue, address consumer health and safety concerns, increase investment in manufacturing in line with the ‘Make in India’ initiative, create employment, bring in foreign direct investment and increase exports.

The Way Forward: The report prescribes following policy recommendations towards developing transparent and predictable regulatory and pricing principles for the alcoholic beverages sector:

Have Clear and Predictable Policies: The state excise departments should lay down clear policies at predictable intervals of two to three years, which can help businesses to expand, to make long-term investments, and encourage new business models to flourish. The tax slabs need to be revised periodically in line with the inflation and raw material price changes. Greater transparency and predictability would encourage entrant of new players and competition.

Technology Interventions: The state excise departments need to switch to online methods of granting licences and permits, which can prevent unaccounted transactions and corrupt practices. Technology should be used to monitor the sector through a robust traceability system rather than physical monitoring.

Conduct Regular Consultations: State excise commissioners, finance ministers, and other stakeholders should engage in regular in-depth discussions to start off a process of transparent, predictable, and consultation-based price determination.

The report encourages evidence-based policymaking, and in setting the stage for dialogue and discussion towards creating a predictable environment in the alcoholic beverages sector. The recommendations put forward in this report are aimed at helping the state governments in attracting more investment, create employment, expand the manufacturing potential and create an overall predictable policy regime and ease of doing business, enhancing India’s position in the global rankings.

‘Developing Principles for Regulation and Pricing of Alcoholic Beverages Sectors in India’ by ICRIER and PLR Chambers

• The first of its kind report provides how states can implement transparent policies through use of technology.

• It provides a model for taxation for the state governments that is based on evidence and data and can be customised to meet the objective of different states

• Alcoholic Beverages are among the top three revenue earnings sector of the State.

• In Karnataka, the registration and licensing processes are manual, and the lead time is 40-45 days, which can be 7 days if processes are automated.  

• 26 July, 2021, Bengaluru – The Indian Council for Research on International Economic Relations (ICRIER) and PLR Chambers have published a report entitled ‘Developing Principles for Regulation of Alcoholic Beverages Sector in India’. The report was released by Mr. Pramod Bhasin, Chairperson ICRIER, and the release was followed by a panel discussion on “Doing Business in India: Regulation & Pricing of Alcoholic Beverages”, by eminent panelists including Mr. Rajiv Mehrishi, Former Comptroller & Auditor General of India, Ms. Nita Kapoor, CEO, International Spirits and Wines Association Of India (ISWAI), , Dr. Sudipto Mundle, Senior Adviser, National Council of Applied Economic Research (NCAER), Mr. Vinod Giri, Director General, Confederation of Indian Alcoholic Beverage Companies (CIABC), and was moderated by Mr. Suhaan Mukerji, Managing Partner, PLR Chambers.

Based on a primary survey and analysis of the State Excise policies and collections, this report found that in most states including Karnataka, implementation of registration and licensing policies are still manual, despite a call for Digital India. In Karnataka, the registration and licensing processes are manual, and the lead time is 40-45 days, which is one of the highest among the 10 states studied by the research team. This can reduce to 7 days if processes are automated.

Releasing the report, ICRIER Chairperson, Mr Pramod Bhasin, pointed out that “the State Excise Departments should switch to on-line system of registration, licencing and permits. Digitalisation can help in better and transparent monitoring of the entire revenue collection process. Data analytics and technology-based solutions need to be adopted to monitor the supply chain and to establish traceability. This will help to address leakages and lead to higher revenue collections.  Innovative start-ups can be roped in for 1-2 such pilot projects.

The Report highlighted that most states in India through their excise polices regulate the entire supply chain of alcoholic beverages – from the number of manufacturers, wholesalers and to the number of retailers to be allotted licences and what product they can sell at what prices. Further, the state determines the location of the retailers. The legal drinking age differs across states, varying from 18 to 25 years. Every State have their own format for “don’t drink and drive”, which adds to the labelling cost.

Dr. Deepak Mishra, Director & CE, ICRIER said: “Excessive, unpredictable and opaque regulations and tax policies have contributed to high cost of doing business in India’s alcoholic beverages sector. By analysing the best practices at home and abroad, this report makes five broad policy recommendations: develop transparent and predictable policies, focus on technology-enabled interventions, enhance the use of data-driven models, engage in regular consultation with stakeholders, and implement phased reduction in tariffs.”

Karnataka is one of the best in terms calculating the ex-distillery price (EDP) for the whisky, as it follows a free pricing policy. Under the free pricing mechanism, for whisky, the manufacturers are required to submit ex-distillery price (EDP) or cost cards, but the state department does not intervene in the methodology or computation of whole or part(s) of the cost card. The state also offers various incentives for wine production, but the production and exports are below potential. The report provided various recommendation to states so that they can meet their revenue collection goals, protect consumer health and export.

The report found that India is one of the fastest growing markets for alcoholic beverages globally, with an estimated market size of USD52.5 billion in 2020. The market is expected to grow at a CAGR of 6.8 per cent between 2020 and 2023. Production of alcoholic beverages increased by about 23.8 per cent during the period between 2015-16 and 2018-19 and the sector contributed to around 1.5 million jobs and generated around USD48.8 billion in sales revenue in 2019. Yet India is unable to become a large exporter like Chile, Argentina or China.

The report suggested how state governments can learn from global best practices. This report provides a model for taxation for the state governments that is based on evidence and data. In addition, the report also recommends customising global best practices to suit the requirements of the respective states to develop a predictable and transparent pricing model that will enable the government to meet its objectives of earning higher revenue, address consumer health and safety concerns, increase investment in manufacturing in line with the ‘Make in India’ initiative, create employment, bring in foreign direct investment and increase exports.

The Way Forward: The report prescribes following policy recommendations towards developing transparent and predictable regulatory and pricing principles for the alcoholic beverages sector:

Have Clear and Predictable Policies: The state excise departments should lay down clear policies at predictable intervals of two to three years, which can help businesses to expand, to make long-term investments, and encourage new business models to flourish. The tax slabs need to be revised periodically in line with the inflation and raw material price changes. Greater transparency and predictability would encourage entrant of new players and competition.

Technology Interventions: The state excise departments need to switch to online methods of granting licences and permits, which can prevent unaccounted transactions and corrupt practices. Technology should be used to monitor the sector through a robust traceability system rather than physical monitoring.

Conduct Regular Consultations: State excise commissioners, finance ministers, and other stakeholders should engage in regular in-depth discussions to start off a process of transparent, predictable, and consultation-based price determination.

The report encourages evidence-based policymaking, and in setting the stage for dialogue and discussion towards creating a predictable environment in the alcoholic beverages sector. The recommendations put forward in this report are aimed at helping the state governments in attracting more investment, create employment, expand the manufacturing potential and create an overall predictable policy regime and ease of doing business, enhancing India’s position in the global rankings.