Why Indians can't drink quality liquor

By Vijay Kumar

THE USITC report says,

The Indian market for alcoholic beverages is dominated by distilled spirits. These spirits are split between foreign-style liquors (e.g., whiskey, rum, vodka), which account for 70 percent of the alcoholic beverage market by value, and Indian-style liquors, which account for 19 percent of the alcoholic beverage market. Beer is growing in popularity (with 11 percent of the alcoholic beverage market and with sales growth of about 15 percent a year); the market for wine is also growing, but remains very small. Industry concentration in distilled spirits is substantial:

Important factors of competitiveness in the alcoholic beverage industry include the cost of distribution (which is often influenced by regulations), brand reputation and recognition, taxes and widespread price controls, and nearly prohibitive tariffs.

The Indian market is influenced by high taxes on alcohol and by a wide range of regulations at the state level. Most states impose both high taxes and price controls on alcohol. There are excise taxes on alcoholic beverages and some of the raw material inputs shipped between Indian states, which have led some producers to establish facilities in every state in which they plan to distribute their product. The price controls limit producers' ability to pass higher production costs on to the consumer.

The factors above tend to favour domestic producers, which are big enough to operate in multiple locations in India and are well informed about the varying state tax and regulatory regimes. Additionally, India bans the advertising of alcoholic beverages. This preserves an advantage for domestic producers, as consumers are more likely to rely on brands they already recognize. The market is also protected by high import tariffs, ranging from 100 to 150 percent. As a result, only 3 percent of the distilled spirits and beer consumed in India is imported. Despite the high import tariffs, U.S. companies primarily attempt to serve the market through exports rather than investment.