Thursday, June 08, 2006


The Ministry of Food Processing Industries has finalised its Draft Model Policy for the alcohol sector. The last time such an exercise was attempted was over a 100 years ago! To be sustainable and effective, the Policy recognises the role of drinking and the need to be practical and relevant to the lives of those they target. It is a well known fact worldwide — that policies cannot control consumption, hence they need to control harm. In view of this, policies now encourage consumption of drinks containing moderate forms of alcohol such as beer and wine. The Model Policy aims to achieve this by introducing tax structures which favour low alcohol products and by removing ambiguities from the existing system. The Policy also appreciates that the job and income multiplier of beer is greater than wine and spirits. Consequently, in most developed countries, taxes are relatively lower on beer as it has the highest share of about 60 percent in alcohol consumption.

In India however, the picture is entirely different and the new Policy seeks to address this. Share of beer is a mere four percent and while per capita consumption of spirits is at 65 percent of global average, per capita consumption of beer is just three percent of global average — a direct consequence of the archaic tax structure which instead of favouring beer actually discriminates against it. Globally average tax on beer is about half than on spirits, while in India tax on spirits is in line with global average but tax on beer is 60 percent higher than spirits and more than three times the global average. No wonder beer in India is unaffordable and the consumption of hard spirits is on the rise.

Salient Recommendations of the New Policy
  1. Tax on Beer 35% of MRP (ED 15% + ST 20%) Spirits/Country 60%; Wine 20%: States are further encouraged to reduce tax on beer by another five percent in phases if revenue gains are achieved. The proposal will help bring taxes on beer in line with global average, down from the current India average of 42 percent. It is also proposed that the fixed component of levies in terms of license fees should not exceed five percent of the MRP.
  2. Uniform MRP: Consumer prices to be uniform across all states and determined by manufacturers based on market forces and not dictated by government policy, as in other consumer goods.
  3. Interstate levies to be removed: Free movement of goods between states to encourage competition and enable manufacturers to get economies of scale. This is particularly pertinent in case of breweries where capital investments are high and large capacities are much more efficient.
  4. Retail outlets to be on fixed fee, longer term basis (no auction system): Remove monopolies and cartels that still prevail in some states, thereby encouraging competition, reducing consumer prices and leading to a better retail environment.
  5. Communication at point of sale / consumption for beer and wine: In order to enable consumers to make an informed choice and to promote responsible drinking.
  6. Modern breweries are to be permitted to have multi-purpose process areas/vessels, blending, flavouring, HG brewing, wort streaming etc. to improve efficiencies and enable innovative products. Moreover, with the recognition that brewing unlike distilling is a continuous process; the stages of monitoring and control have been greatly reduced. No wonder the current rules formulated in the early 20th century with largely distilling operations in mind, are obsolete and inappropriate in today's context.

1 comment:

Market Maven said...

Hi can i get more of the recent regulatory issues on alcohols. Please mail the same to Thanx