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As beer sales plummets, government tarries duty cut

The Puducherry market has shrunk from 32 lakh cases in 2019 to 24 lakh cases in 2021

August 21, 2022 10:39 pm | Updated 10:39 pm IST - PUDUCHERRY

Though the government earned over ₹1,000 crore through excise revenue in 2021, only about 15% or about ₹150 crore came from beer sales.

Though the government earned over ₹1,000 crore through excise revenue in 2021, only about 15% or about ₹150 crore came from beer sales. | Photo Credit: KUMAR SS

The sale of beer has tanked over the past year in Puducherry as relatively high prices and post-pandemic pressures on disposable incomes are either forcing consumers off the brew or driving them towards equivalently priced hard liquor brands.

While there has been a turnaround in the sale of hard spirits after the withdrawal of the 20% Special Excise Duty (SED) slapped during the peak of the COVID-19 pandemic in 2020, and an uptick in excise revenue that crossed ₹1,000 crore in 2021-22, beer offtake has plateaued at an unprecedented low in recent times.

Though the government earned over ₹1,000 crore through excise revenue in 2021, only about 15% or about ₹150 crore came from beer sales.

Beverage industry representatives say that in spite of its tag of a tippler destination, Puducherry is the only market in the country reporting dispiriting response to beer even as offtake of the low-alcohol brew has seen a post-pandemic revival everywhere else.

The government, which is seeing overall buoyancy in excise revenue, prefers to wait before upsetting the apple cart.

According to beer industry representatives, the Puducherry beer market has shrunk from 32 lakh cases (12 bottles per case) in 2019 to 24 lakh cases in 2021, a 25% decline, and is expected to shrink further this year.

This is mainly due to the increased prices — a 20% special excise duty imposed on top of the MRP, taking beer outside the reach common people and pushing them towards more cheaper, and potentially more harmful, hard liquor, a spokesman pointed out.

Till 2019, liquor and beer demand was trending upward until the pandemic hit. The market virtually froze up during a period of lockdown, economic uncertainty, job loss and declining disposable incomes. But, as things started improving, the sale of hard liquor bounced back quickly but that did not happen with beer across the country, representatives said.

In Puducherry, the additional SED has pushed beer beyond the means of a substantial section of patrons, driving many to cheaper brands or hard liquor. Unlike the hard spirits, beer consumption is driven by a principle of elasticity where a reduction in the beer selling price has led to a sharp increase in the sales volumes, directly leading to an improved excise revenue collection for several States such as Uttar Pradesh and Haryana.

The Excise Department had imposed the SED on the Maximum Retail Price of all liquor products to offset the steep shortfall in excise revenue in July of the 2020 pandemic year. The additional duty, which narrowed the favourable price differential of liquor brands in the Union Territory and in neighbouring Tamil Nadu, was briefly withdrawn, but restored in July 2021.

“For a government that hinges heavily on tourism and excise revenue, it is counter-intuitive to keep the price of beer so high. In fact, as things stand, Puducherry has the country’s highest taxation per ml of alcohol consumed on beer in the country,” said Akshay Gupta, spokesman for Anheuser-Busch InBev (ABInBev), maker of several iconic beer brands.

At a recent meeting with Chief Minister N. Rangasamy and senior government officials, the company representative put forth the argument that as volumes are what give wriggle room in an essentially low-margin market, higher offtake can offset loss from lower excise rate, and in fact, increase revenue. Any revenue loss impact from even a 10% reduction in the SED will be more than compensated by higher inflows as beer sales reaches the pre-pandemic levels (an additional 8 lakh cases), the industry feels.

“We are looking at the big picture data on sales and revenues across different IMFL and beer-wine segments before taking a call on SED revision,” said T. Sudhakar, Deputy Commissioner (Excise). “Excise revenue is showing positive growth and the Department has set its sights on a target of ₹1,300-₹1,400 crore this fiscal from IMFL and beer-wine sales.”

“We are keeping a tab on the dip in the beer-wine segments as well as premium IMFL brands, but would like to wait a while longer before deciding on a tax policy intervention,” the official said.

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