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Tough time for tipplers as Kerala plans to hike liquor prices by 7% from Feb

Vinson Kurian Thiruvananthapuram | Updated on January 25, 2021

Sales beat Covid blues, rebound Q-on-Q

 

The Kerala State Beverages Corporation (Bevco), the public sector agency with a monopoly on purchase and distribution in the State, has finalised a proposal to increase the price of liquor by seven per cent effective February 1 in response to a long-pending demand of the alco-bev industry.

Post-2018 floods, the State had raised the excise duty on liquor for 100 days with a view to tiding over a fiscal crisis. Two years down the line, Covid-19 had prompted it again to reach out for this low-hanging fruit. The price hike announced in May last took liquor sales tax up to 247 per cent, among the highest in the country.

Annual revenues

This compares with the levy of as low as 25 per cent levy in 1960-61! The hike of May last year alone amounted to 35 per cent. Bevco’s turnover in 2019-20 was at a record ₹14,508 crore, or ₹1,568 crore higher than the previous year.

On an average, the State sources up to 20 per cent of its annual revenues from liquor.

United Spirits and Tilaknagar Industries, makers respectively of McDowells No 1 and Mansion House Brandy, are the leading players in the Kerala market. The latest price hike is expected to not only help boost the bottomlines of the manufacturers but also shore up revenues of both Bevco and the government.

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Sales gallop quarter on quarter

The price hike could not have come at a better time for the stakeholders, with sales having improved substantially after easing of the lockdown. Amit Dahanukar, Chairman & Managing Director, Tilaknagar Industries, told BusinessLine that sales have shown significant pick-up, quarter on quarter.

“The industry has witnessed a strong rebound even into the third quarter. Opening up of tourism and hospitality sectors coinciding with the festive season may have facilitated this. Sales will grow further in the immediate future as more people start travelling and holidaying,” Dahanukar said.

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Beats Covid-19 blues

Revenue to the State government from liquor sales comprises sales tax, excise duty, gallonage fee and license fee. It is estimated that for every sale of ₹ 100, as much as ₹ 85 goes to the government as tax. Along with petrol and lottery, liquor has always been the go-to source for the cash-strapped government.

Dahanukar said that for Tilaknagar Industries, quarter 1 (April to June) was virtually a washout owing to the lockdown, but sales had come back strongly in Q2 and Q3. Citing figures, he said sales of one lakh cases in Q1 had more than tripled to three lakh cases and 3.5 lakh cases in Q2 and Q3, respectively.

Mostly brandy market

Asked if the lockdown has encouraged ‘home-drinking/binge drinking’ habits, he said this has been an unprecedented situation and may have induced unusual response in some people. “But I don’t see that as permanent. People will resort to social drinking as the open-up becomes complete.”

The State is predominantly a brandy market with more than 50 per cent of the aggregate sales. In 2019-20, sales amounted to approximately 19.3 million cases (by all manufacturers) and brandy made up for nearly 56 per cent at 10.7 million cases. The year before, sales logged in at 19.1 million, and those of brandy at 10.1 million cases, or 53 per cent of the total.

'High levies are regressive'

Within the overall brandy category, maximum sales are recorded in regular-brandy segment that includes brands like Courrier Napoleon Red and McDowell No.1, among the most in demand. This segment accounted for 58 per cent of the total brandy sales in 2019-20. The regular-brandy segment is followed by the ‘upper medium’, ‘semi-premium’ and ‘medium’ brandy segments.

Meanwhile, Dahanukar of Tilaknagar Industries observed that Kerala retains a very high levy on liquor resulting in the MRP’s of IMFL brands being amongst the highest in the country. This does limit the growth of the premium category. Moreover, there are frequent changes in taxation.

“Alcohol has traditionally been the highest grosser for the state government in terms of revenue. While one can understand the short-term compulsions behind these moves, it may not augur well for the long term. Excessive taxation and frequent changes in taxation could encourage illicit sales and production.”

 

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Published on January 25, 2021
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