Liquor sales finally revive after near washout in pandemic year

A strong revival in sales in the second half of the year has seen the domestic liquor industry restrict its overall decline during fiscal 2021 to just 9 percent, figures compiled by industry body Confederation of Indian Alcoholic Beverage Companies (CIABC) show.

The nationwide lockdown in the country in April-May last year that was followed by other smaller lockdowns in many parts of the country in the next few months had resulted a near washout for the sector in the first half. Sales fell by 42 percent in the first quarter and another 9 percent in the second to log an overall 29 percent decline in the first half.

The recovery started during the festive season when the decline improved to just 1 percent in the third quarter leading to a full recovery and a 6 percent growth in the last quarter. For the fiscal as a whole, total sales of IMFL products was 305 million cases (9 litres each).

The trends were however not homogenous and CIABC said states that imposed high Corona cess and other taxes after the first wave, saw tepid sales. The top five states in terms of recovery were Maharashtra, Goa, Haryana, Himachal Pradesh and Uttarakhand, while West Bengal, Rajasthan and Chhattisgarh were among the big states which witnessed largest declines over the previous fiscal.

"Many states showed positive trend through the quarters, and even though most states were unable to fully recover volume lost in first and second quarters, strong performance in third and fourth quarters reflects fundamental strength in the market. It also confirms that there is no lasting shift against alcoholic beverages in consumption baskets," says CIABC Director General Vinod Giri.

"Incidentally, the majority of these states are ones that imposed high cess/tax during the first wave of Covid, and unlike other states did not withdraw or reduce it. West Bengal and Chhattisgarh also made changes in the route-to-market which may have suppressed the market's natural uplift".  

Alcohol along with petrol, diesel and power are the only items that are taxed by state governments directly and not part of GST. Historically there has been a tendency by states to increase taxation on liquor to offset shortfall in revenue from other sources. In some cases, revenue from liquor accounts for upto 20-25 percent of the state's overall kitty. Giri however said it is a misplaced concept.

"The inclination of some state governments to impose high taxes on alcohol, assuming it will yield greater revenues, is greatly misplaced. Sales figures clearly show that fall in sales on account of higher taxes negates expected increase in Government's revenues," he said. "Higher prices on account of higher taxes not only lower case sales, they also force consumers downtrade to cheaper options. Thus tax collection per bottle also goes down, leading to disproportionately higher loss in tax revenues."

CIABC also said that some states applied changes in the route-to-market without careful consideration of possible adverse consequences. For instance, in Chhattisgarh introduction of super distributor has led to suppression of sales, and in West Bengal mid-year changes in excise policy have led to further decline in sales.

"We are also concerned regarding Meghalaya, where proposed introduction of super distributor where there is no need for it, may lead to collapse of sales," he added.

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