The state of Karnataka, one of India’s largest markets for alcohol, is set to experience a 20% increase in excise duty on liquor, leading to a rise in prices. This move comes just before the holiday season, a period of increased alcohol consumption, according to market observers.
Impact on Companies and Consumers
Major liquor manufacturers like United Spirits (USL), the largest in the country, have cautioned that this tax hike will result in a significant 14-17% price surge for their brands within the state. USL, known for popular labels such as McDowells No. 1 and Royal Challenge, anticipates a decline in demand due to the price increase.
Hina Nagarajan, MD & CEO of USL, expressed concern over the duty increase, citing the already high duties and existing pressure on demand. Other manufacturers, including Pernod Ricard and John Distilleries, are also expected to follow suit with similar price hikes.
Projected Price Changes
For instance, the cost of a 750-ml bottle of McDowell’s No.1, currently priced at ₹914, is expected to surpass ₹1,000. Similarly, a 750-ml bottle of Royal Stag from Pernod Ricard is projected to increase from ₹1,360 to ₹1,591, marking a 17% jump in price.
Market Significance and Consequences
Karnataka holds a substantial share of India’s alcohol sales, contributing around 18% of the country’s total Indian-Made Foreign Liquor (IMFL) sales, equivalent to 385 million cases. Key players in the state, including USL, Pernod Ricard, Inbrew, John Distilleries, and Amrut Distilleries, collectively account for 80-90% of alcohol sales.
Consumer Behavior and Possible Smuggling
Vinod Giri of CIABC highlights concerns over price hike’s impact, including downtrading and cross-border imports due to high consumer prices in Karnataka. State heavily reliant on alcohol revenue; FY22-23 excise earnings ₹30,000 crore, set to increase with higher tax.
The upcoming excise duty increase in Karnataka’s liquor market may raise alcohol prices, altering consumer habits and prompting cross-border purchases, while also affecting state and central government revenues.