Bengal: Duty cut favours beer consumption

The beer business is on the rise in West Bengal thanks to a cut in inter-state tariffs or import duties on beer effective November 2006, Financial Express Via Thomson Dialog NewsEdge announced January 28. As a result, the industry is bullish about an increase in the sale of beer in the next fiscal year. According to industry estimates, about 24 lakh cases are sold every year, of which strong beer constitutes about 18 lakh cases.

On the other hand, the Indian beer market was estimated at about 110 million cases and beer consumption has been growing rapidly at a CAGR of 7% over the past decade. Earlier, the import duty on strong beer was Rs 140.4 per case, which worked out to Rs 18 per bulk litre. In the new regime, there is a sales tax of 17.5% on the maximum retail price, which translates to Rs 105 per case or Rs 13 per bulk litre.

The cut in duty effectively means a Rs 5-7 decrease in the price of a bottle of beer. And this has made the industry cheerful. The cost of beer in the state ranges between Rs 45 and Rs 60 a bottle. "The state has experienced a steady growth in beer consumption which was anywhere between 7% and 15% on an annualised basis. On a conservative estimate, we expect the industry to register a growth rate of 25%, though we target to double beer sales in the state," a dealer said. About 10 months of the year is considered suitable for beer consumption in West Bengal.

In addition, there is a change in the attitude towards alcohol and it is now gaining social acceptability, industry sources pointed out. The sales tax of 17.5% on the maximum retail price translates to Rs 105 per case or Rs 13 per bulk litre. The cut in duty effectively means a Rs 5-7 decrease in the price of a bottle of beer The Indian Made Foreign Liquor (IMFL) segment in the state is dominated by the Vijay Mallya-promoted United Spirits Ltd with a 66% market share, while at the second spot is Seagram with about 10% market. Though West Bengal has a licensing system in place rather than an auction system, there is felt a shortage in the retail availability of alcohol. "The government needs to enhance the retail availability. This would lead to higher consumption of alcohol, and in the rural areas, people can avoid drinking illicit alcohol. For example, Kolkata, with about 100 liquor shops, consumes 7.7 lakh cases of beer, while Mumbai, with about 500 shops, consumes 51 lakh cases of beer a year," an analyst pointed out.

Industry watchers believe that if proper measures were taken, the spirits market in India could grow at about 12% annually, thus more than doubling in market size from current levels to 232 million cases by 2010, and further to 513 million cases by 2015. "The beer sector will witness a growth rate of 10% a year until 2015. This implies that the beer segment will achieve volumes of 11.9 mln hl (million hectolitres) by 2001 and 19.1 mln hl by 2015. The current capacity in the sector is 11 mln hl per annum, of which about 61% is utilised. This implies that the sector needs about 9.7 mln hl of additional capacity by 2015-assuming that the sector cannot operate at more than 75% utilisation, given inter-state barriers to the movement of beer," an analyst pointed out.

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