The year 2017 was perhaps one of the most difficult for the $35-billion Indian liquor industry. Prohibition, highway liquor ban and introduction of GST took the industry down several notches.

One of the first challenges the industry faced this year was from the unlikeliest of sources, the Supreme Court, which imposed a ban on all liquor sales within 500 meters of highways from April 1 this year.

The ban was imposed following a PIL from Harman Singh Siddhu, who runs an NGO called ArriveSAFE. The ban was to curb drunken driving on highways across the country, and it ended up proving to be the biggest disrupter for the industry.

The effect of the ban was swift. Liquor companies, the hospitality industry as well as States lost thousands of crores of rupees.

A year before the liquor ban came into effect, Bihar Chief Minister Nitesh Kumar decided to keep his poll promise of imposing prohibition in the State. Prohibition was imposed in Bihar from April 2016, and major liquor companies in the State were forced to close down their distilleries and bottling plants.

In 2016-17, Bihar lost about ₹3,000 crore in excise revenues and another ₹1,000 crore from VAT because of the prohibition.

The third-biggest issue, which harmed no one but hurt the industry’s image, was the constant hounding of its poster boy, Vijay Mallya, by the lawmakers. With Mallya fleeing the country leaving behind scores of fuming lenders, banks nearly drew the curtains down on corporate lending. Mallya is currently fighting an extradition case in London and has been declared an absconder by various courts in India.

The liquor ban on highways, according to various estimates, has cost States and the hospitality sector a revenue loss of ₹50,000-75,000 crore. This saw some State governments de-notify the highways running through their States, thereby allowing hotels and restaurants within 500 meters of the highways to sell liquor to its customers.

United Spirits, the largest liquor maker in the country, reported an 18 per cent decline in net sales during the immediate quarter after the highway ban. The liquor market fell nearly 20 per cent in the quarter, and at least 1,500 retail outlets closed down permanently.

‘On recovery path’ But according to United Spirits’ CEO Anand Kripalu, the industry is already on a recovery path. “With the recent Supreme Court clarification on the highway ban, we have seen outlets start to reopen and we expect the impact of the highway ban to continue to decrease and the business to normalise by end of the third quarter,” Kripalu said.

The industry has also started receiving support from some States, which is quite unusual in a country where imposing prohibition is seen as a major political victory.

Karnataka Chief Minister Siddaramaiah has come out in support of the industry and he recently told the State Assembly that he is not only against prohibition but also wanted Parliament to pass a law which prohibits States from imposing prohibition.

The top five States in the country together mop up around ₹1 lakh crore from revenues from the liquor industry, most of which goes towards bank-rolling various populist but loss-making schemes of local governments.

Attractive market In spite of various regulatory flip-flops, the Indian market is still one of the most lucrative for the global liquor industry with about 19 million Indian consumers entering the legal age of drinking every year.

Approximately 6 per cent of the global alcohol beverage growth is driven by India, which is expected to grow to 11 per cent in a few years.

This is because of the relatively low per-capita consumption of alcoholic beverages, which stands at about four litres per annum, lower than most other developing countries where the per capita consumption of alcohol exceeds 10 litres per annum.

The Alcobev industry in India is witnessing significant changes. Influenced by western culture, a strong trend towards premiumisation is clearly visible. For the industry as a whole, the premium and above segment is expected to grow at a CAGR of 14 per cent over 2016-2021, whereas the prestige segment is estimated to grow at 12 per cent over the same period.

Currently, India is one of the most attractive markets for the global whiskey industry. It is estimated to grow at a CAGR of 8-10 per cent in value over the next five years.

In the whiskey segment, India tops with approximately 48 per cent of global volumes, and, overall, the whiskey category has grown at 3 per cent CAGR in the past five years, with IMFL whiskey growing at 3 per cent and Scotch, at 11 per cent.

Currently, the IMFL whiskey volume stands at 190 million cases and the Scotch volume at 3.45 million cases (IWSR 2016).

These numbers clearly indicate that the liquor industry is galloping at a such a rapid pace that it will take more than political willpower to curb its growth.

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