India is one amongst the fastest growing markets for alcohol across the globe. A research firm, Future Market Insights is of the view that rapid growth in urban population, increasing spending power, sizable middle class populace and a wide-ranging economy are some significant reasons due to which India is observing an increase in alcohol consumption. The alcohol consumption in most of the states is higher in the rural areas compared to towns and cities. The legal age for drinking and laws that regulate the consumption and sale differ from state to state. Recent studies also show cumulatively that alcohol purchase is getting more sensitive in terms of price change compared to soft drinks. Even low income households were observed to make no compromises in the purchase of alcohol regardless of price.
Impact of GST on State Revenues
According to the current scenario, the alcohol sector is considered as the second largest contributor to state government in terms of taxes. State government is expected to continue placing tax on alcohol but the central government is keeping human consumption alcohol and portable alcohol out of GST. However, the manufacturers of alcohol are still claiming that there is possibility that their margins will get drastically affected due to increasing GST rates. Moreover, the price for beers have increased significantly by 15%. Even though liquor is relieved from GST, foremost inputs necessary for manufacturing saleable alcohol such as denatured alcohol, barley malt, molasses and glass bottles are taxed by around 28%. There is possibility that the number of customers will decrease due to increasing prices along with taxes which in turn will affect the revenue of the state in horizon. Demonetization has had adverse effects on the alcohol industry. Producers of alcoholic drinks for human consumption acquire the raw materials from captive manufacturing or by way of obtaining from third parties or import it from various other countries. As the completed product will be preserved outside GST management, it will certainly have negative effect on the revenue of state and will also make the end product costly, which in turn will drive the consumers towards finding means and ways to resort to counterfeit products.
The Changing Phase of India in Alcohol Consumption
Production of liquor intended for human consumption is dependent on state excise liabilities and not on central excise liabilities. Nevertheless, state excise obligations will be replaced in the GST. As per current information, Telangana and Andhra Pradesh are the prominent alcohol consuming states in India. The populace of these states are not only advancing in consuming IMFL (Indian made foreign liquor) but also are high in country liquor. Increased exposure to diverse lifestyles and most significantly the growing relaxed social norms are leading to increase in the consumption of alcohol across India. The technology roar in the cities such as Bengaluru and Hyderabad has contributed to increased disposable income amongst the youth which in turn is also increasing alcohol consumption. Duties and taxes notwithstanding, the consumption of alcohol has always been increasing rapidly in India, but more significantly, the quality of alcohol that Indians are guzzling is rising up exponentially which is considered as a positive trend.
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