Experts Advocate for Streamlined Regulations

The third ThinkPad Session, titled ‘Navigating Challenges for Manufacturing and Importing Alcohol Brands,’ delved into long - standing issues which have shaped and at times constrained India’s alcobev industry. A thoughtful and incisive discussion, the session addressed pressing topics such as the need for market-driven pricing of alcohol brands, initiatives to simplify industry regulations, and the call to remove Extra Neutral Alcohol (ENA) used in liquor manufacturing from the GST framework.

Moderated by Rajnish Singh, Founder of Dhvaen Law Practice, the session provided an in-depth look at the complex regulatory landscape for alcohol manufacturing and imports in India. Rajnish opened the discussion by highlighting the multifaceted legal and procedural challenges, including high licensing fees, the numerous clearances required to set up operations for imported brands, and a host of other regulatory hurdles. The discourse underscored the critical need for introspection and reform, bringing much[1]needed attention to how policy changes could unlock new opportunities for growth and innovation in the Indian alcobev market.

Rigmarole of Legislations

Raja Mukherji - Business Advisor and Consultant, drew some parallels between the state’s stance towards the alcobev industry in India and the US. “In the US also like in India, there is time taking label registration process and there also taxes on alcobev products are as complex and extensive as in India. Yet it is comparatively easier to do alcobev business in the US than in India as they have embraced digital technology whereas our government is still in the process of embracing it,” Raja elaborated while advocating for single window clearance in India’s alcobev regulatory process. “We tend to take the same approvals three times over,” Raja lamented while urging for simplifying the process on the part of the government. He stated that the industry should take in a unified voice to address these issues with the state governments in a much more holistic manner. He believes that perhaps nowhere in the world there is a system where a state government or a federal government gives EDP, EBP, EW clearance like the way we do in India. “The reason is the bulk of the price of an alcobev product in India is accounted for by taxation, which is borne by the consumers,” he reasoned. Raja also implied that for high-end alcobev products, market-driven price was the answer as slight increase in their prices wouldn’t much affect their demand, though he said that for country liquor and economy range of alcobev products, which constitute the bulk of the revenue from alcobev products in India, industry needed to advocate that people who are the target consumers in that range should get a good product at a good price. Rajnish called for awareness of the industry players regarding the numerous laws in India’s alcobev sector and check whether they were in compliance with it. “Alcobev companies should be aware before launching a product that what is allowed by law and what is not,” Rajnish averred.

Milking the Supplier

Another of the distinguished panelists, Suresh Menon, Secretary-General – ISWAI informed that in India, revenue from alcoholic beverages was one of the two or three sources of revenue which the states themselves could administer. “States thus always try to enhance the revenues from alco-beverages, often at the expense of the suppliers, which is the weakest link in the value chain between state, trade and supplier,” Suresh added. “In our industry, price increases are granted by the governments, they are never taken by the suppliers,” he asserted while pointing out that the government often takes the easy way out by putting the pressure on the weakest link in the value chain, that is on the suppliers.

Pricing Matters

Suresh also viewed that for high-end alcobev products, market-driven pricing should be administered, as their slight increase in pricing would not affect their demand. “Governments should ideally control the prices at the lower and medium segment only but beyond that prices for alcobev products in India should be guided by market forces,” he elaborated. He gave the example of the Delhi government which had ruled that for any alcobev product priced more than Rs. 400 per quart, the supplier could charge according to market forces. “The only problem is that Rs.400 has not been upgraded for quite a number of years, as if there is no inflation,” Suresh pointed out. He also observed that it was not always feasible to have same or similar alcobev prices across states when distillery license fees, label registration fees, brand registration fees differed (sometimes widely) across states of India. “Sometimes bureaucrat in his or her personal capacity may understand your problem but his official position prevents him or her from agreeing with your suggestions,” Suresh stated while emphasising on continual and patient negotiation and advocacy with the concerned state players to cater to the industry interests.

Need for a Unified Voice

Nita Kapoor, Founder - Integrated Insights Consulting and former CEO of ISWAI, observed that the power of the liquor industry in India was not with the suppliers but with the states, and with the trade. “Two strengths of the suppliers can be their brands and consumers,” she asserted without mincing words. Nita suggested for the inflation to be factored in the states’ excise model to address the pricing issues, which she pointed out had already been done by West Bengal and MP. She also urged for India’s alcobev industry to have a unified voice and showed her visible irritation at the industry players undercutting themselves. She called for the industry players to “Never fight on price for it will destroy the value of the industry.” She called for the constitution of an independent body like the World Spirits Alliance or Indian Spirtis Alliance, which should address these issues.

Industry Initiatives

Rajnish talked about Suresh’s significant role in the exclusion of ENA used to manufacture alcoholic liquor for human consumption from GST, which would be effective from 1st November of this year, and urged him to talk about the recent industry initiatives which have yielded success through negotiations with the government. When the draft GST bill came up in early 2017, Suresh made a presentation on behalf of India’s alcobev industry before the concerned government authorities where he urged them to not do anything which would increase the industry’s stranded costs so that he did not have to go back to the states and call for price increases of alcobev products, which in any case would be difficult to come by. “Those gentlemen in the finance ministry accepted my recommendation and some other recommendations,” Suresh pointed out while adding the newly drafted GST law initially didn’t have provision for recycled bottles. The alcobev industry uses recycled bottles and paying 18 percent GST on recycled bottles would have been very steep. Suresh’s intervention led to introduction of special clauses for recycled bottles within the GST framework, which greatly benefitted the glass and the beer industry beer industry tends to recycle bottles eight times per unit. “Freight was proposed at 12 percent under the new GST law and we persuaded the government to let it remain at 5 percent,” Suresh informed. In recent times also Suresh’s negotiation skills have yielded positive results. “Taxation on molasses, which was 10 percent during central excise duty regime and was increased to 28 percent during the GST regime, has been rationalised to 5 percent,” he further stated to the applause among the audience.

Surrogate Advertising

Rajnish broached the topic of surrogate advertising and brand extension, which is often laden with controversy in India, and urged Nita to explore more on that. Nita gave an insightful presentation covering three decades of legislation pertaining to surrogate advertising on alcohol and tobacco, in India. “The guidelines for surrogate advertising kept getting aggressive over the years and for this we have to look into our own collars. Industry went for aggressive surrogate advertising which disturbed a host of ministries,” Nita commented. Eventually in February 2024, the Ministry of Corporate Affairs called for a stakeholder meeting, and that was when, according to Nita, advocacy on the part of India’s alcobev industry started. “We are now going back to acceptance of CTNR rules of 1994, which has some simple guidelines,” Nita informed. Under these rules, brand extension shall mean a practice where unrestricted goods, product or service is sold or provided under the same wordmark or logo mark as the one used for prohibited goods, product or service. However, this definition is valid for restricted product categories only if some guidelines are followed which according to Nita, include “Stopping from shadow boxing of your liquor brands, stopping from showing environment, colour or mood which are in dichotomy to the product you are advertising.” In her presentation, Nita also elucidated that the most critical failing in many brand extension initiatives was that they started with the marketer and not the consumers. “Trade marks may belong to the marketer but the brand finally exists in the mind of the consumers,” she expressed. Nita was hoping that these guidelines would soon be formalised, whose adherence would give a great opportunity to alcobev players to unbox their brands through brand extensions. She believes that brand extension would succeed only if the concerned players take forward the relevance of the mother brand in a refreshing manner and format, to create a consumer connect. She cited the success story of brand extension in Dunhill Perfume to drive home her point, which, according to her, has absolutely captured the ethos of Dunhill.

Relevant Queries

In the Q&A session, Kishan Pedhapally from Asav Wines lamented on the woes of liquor manufacturers operating in Telangana, whose payments are being withheld for eight months. He urged how trade associations could intervene to sort out this serious problem. Nita answered that it was not the association’s duty to follow up on payments, but Bishan Kumar, Editor-in[1]Chief, Spiritz Magazine, clarified that it was a serious problem for the liquor industry of Telangana and not of a few players. “It is not an issue of one company or a few companies, therefore a collective effort is needed to address the issue,” he explained, displaying sound reason. Gianander Dua, Director Hops Marketing also seconded Bishan’s view. “It is an industry matter and associations are made for the industry. Liquor associations as a forum need to take this on behalf of all affected liquor companies operating in Telangana,” he firmly affirmed. Shalabh Sharan, Executive Director at Graceland Asset Management asked how one could be sure of the authenticity of liquor products while buying them from local liquor shops, a practice which according to him, have made many suspicious about the liquor products’ authenticity following their consumption. Nita wished for the availability of a technology of a scan or app on her mobile which would enable her to check the authenticity of those liquor products. “But sadly, we don’t have such technology with us presently,” she averred. Suresh Menon chipped in by questioning the practicality of exercising such a savvy technical option in the Indian context where one gets very limited time at a crowded liquor shop. “In most liquor outlets where your presence at the counter on an average is hardly one-and-a-half minutes, it is difficult to access a liquor bottle beyond paying for it,” he logically observed.