The Karnataka state government has directed beer manufacturers to cease third-shift operations at their breweries, attributing the decision to a shortage of permanent excise officers and staff throughout the state.
This decision could result in a significant disruption in the production of brewing products in India’s second-largest beer-consuming state.
Nevertheless, spirits manufacturers with distilleries have not received the same notice, causing concern among beer makers that a potential shift in demand towards hard liquor might occur in the event of supply constraints for their brands.
United Breweries, AB InBev, Bira, and Carlsberg collectively possess seven breweries in Karnataka, all of which operate in three shifts and rank among the largest in the country for these companies.
“We sincerely urge policymakers in the state to reconsider the decision to cancel the third-shift operation in the brewery. This decision will significantly impact the state’s thriving beer industry, jeopardising employment and causing a shortage of beer during the peak demand period around Christmas, New Year and beyond which is the peak season for beer,” said a company official of a leading beer company.
In India, numerous state governments either regulate the retailing or wholesale distribution of liquor, or both, with taxes on alcohol constituting a significant portion of their revenue. Over 50% of the retail price is directed towards state and central governments through Value Added Tax (VAT) and excise duty. In August, Karnataka declared a 20% rise in additional excise duty on domestically produced liquor.
In the fiscal year 2022-23, the excise revenue generated from total liquor sales in Karnataka amounted to approximately INR 30,000 crore. Beer constitutes 15% of Karnataka’s alcohol excise revenue, experiencing a twofold increase over the past two years to reach INR 4,500 crore. The state annually consumes 3.8 million hectoliters of beer, contributing to 13% of India’s overall volume sales.
“This will also potentially steer retailers and consumers towards stronger alcoholic beverages which have been growing but not as rapidly as beer,” one of the top brewers in the state said on the condition of anonymity.
India, characterized by a tropical climate, promising demographics, and rising affluence, stands as one of the largest beer markets for the world’s leading brewers. Despite its potential, the country faces heavy taxation, and the government has granted licenses to only 80,000 alcohol outlets. This is noteworthy given that more than 20 million people reach the legal drinking age in India each year.
Comprising only a tenth of the nation’s spirits market, beer in India has a per capita consumption of two litres, which is lower than in many other Asian markets. Despite the potential for market expansion, companies express optimism tempered by the acknowledgment that evolving regulations pose one of the most significant challenges to operations in India.
