Effect of Covid-19 on Indian Alcohol Industry

India consumes over three times more alcohol than in the US. It is the ninth-largest consumer in the world.

Andhra Pradesh and Telangana are the largest consumption states in India. These two states have a high consumption of Indian alcohol imported from the foreign market (IMFL).

The current phase in the economy has created a serious offence in the alcohol industry all over India and abroad. Alcohol is one of those products that are not sold online or allowed for door-to-door deliveries because of which the industry continues to struggle through this impending crisis.

The apex body in India for liquor called the confederation of Indian Alcoholic Beverage Companies (CIABC) has urged the Union Commerce and Industry Minister Piyush Goyal to revoke the proposal of reducing Basic Customs Duty on alcoholic beverages imported from the United Kingdom.

The liquor sale came to a halt after the global lockdown from March 25. Consumption during the lockdown further diminished due to the WHO guideline that stated, alcohol or tobacco makes people susceptible to the virus. Hence, it is better to reduce or stop drinking alcoholic beverages.

Alcoholic beverages have high inelasticity. Due to the high price elasticity, an increase in price consumption results in decreases in demand for beverages. Agreeing to the law of demand, a fall in consumption is proportionately more extensive to every change in price.

This is one of the utility products that is highly consumed by consumers even at the time of recession of global pandemic like COVID19.  The excise duty on alcohol is counted under the third-largest revenue generation of taxes which also had an estimated contribution of over 12% in the previous financial year.

According to the latest market analysis on the alcohol industry, states have imposed corona cess for upto 15% and saw a drop in sales of about 16%, while states that imposed 50% corona cess saw a decline in sales by 59%.

Data has shown a huge decline in the demands of alcoholic beverages that has drawn the attention of CIABC to urge the state governments to reduce the cess under sustainable levels.

As per the report updated by the Indian Express, the alcohol industry has seen a massive decline of 35%-40% in the sales of alcoholic beverages in the aftermath of covid lockdown.

After the lockdown, the sales came to a complete standstill because of which after the lockdown the companies imposed covid cess that went beyond 60%-70%. The on-premise demand for liquor is vital for the demand calculation for the alcohol industry.

Globally there was 15% decline in the liquor industry whereas on the supply side, the factories have seen a sharp downfall in the supply of glass bottles which seems to pick up soon after the measures of tax and imports relax on the borders. Indian industry has the largest whiskey consumption that will take a notch-up sooner.