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High taxes stifle domestic beer industry growth

High taxes on beer are stifling the domestic brewing industry's growth by encouraging drinkers to turn to cheaper hard liquor, company officials say.

In other countries, "beverages are taxed according to their alcohol content. The lower the alcohol, the less consumers pay for it," said Mohan Krishna, a senior marketing official in the brewing unit of the Rs 20-billion rupee GMR Group.

But in India, tax authorities "treat beer the same as other strong liquors and tax them equally at 70 per cent of the total price," he said.

The high taxes mean a 650-ml bottle of beer retails for Rs 30 to Rs 60 in stores, they say. In contrast, a 180-ml bottle of cheap whiskey or rum can be bought for Rs 30.

Shekhar Ramamurthy, divisional marketing vice-president at United Breweries Ltd, said India's beer consumption could grow at 30 to 35 per cent annually if taxes were brought down to the same levels as in a comparable economy like China.

"The price of beer in China is half that of India which has led to strong consumption growth there," he said. "We realise governments are concerned about a loss in revenue if taxes are lowered. But the surge in volumes will make up," he said.

In Asia, China's per capita beer consumption is estimated at 30 litres and Vietnam's 5 litres. Further afield, Denmark's per capita consumption is 190 litres, that of the Czech Republic 178 litres and Germany's 150 litres, officials say.

But in India, per capita consumption of beer in India is a mere 0.5 litres, Krishna said.

Prices regulated

Beer prices in India are regulated by provincial governments which prevent brewers from increasing prices beyond a specified level. But the governments hike taxes regularly.

As a result, industry officials estimate the country's annual beer sales have remained stagnant for five years at about 55-60 million cases of 12 650-ml bottles.

"A mug of beer in a good pub is three times costlier than it was seven to eight years ago. I have many friends who have cut down on their beer and moved on to stronger stuff," said Chetan Manmath, who runs a real estate agency.

There are good arguments in favour of lower taxes on beer, says a senior finance department official in Karnataka state, whose capital Bangalore is regarded as India's pub capital as it houses over 200 pubs.

"But governments have always treated beer as a luxury and so an easy target for high taxes. It's seen as a vice, just like cigarettes or other alcoholic drinks," the official, who did not want to be identified, said.

Under the country's economic liberalisation programme kicked off a decade ago, India has allowed many global beer brands to enter the country's refrigerators.

US-based Stroh Brewing Co, Germany's Henninger, the Philippines's San Miguel Corp and Australia's Fosters Brewing Group have all launched their brews in India.

But there too, beer drinkers face problems with many states limiting consumers' choices, industry officials said.

"Tamil Nadu does not allow sales of any brand brewed outside the state. Kerala does not allow sales of strong beer. Delhi does not allow sales of brands that advertise on cable TV," Krishna said. "Karnataka allows distribution of non-local brands only through state-run agencies. It's bizarre."

Also the alcoholic beverages industry is barred from advertising their brands in any form except on signboards of outlets selling beer and spirits, industry officials say.

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