How India’s decision to slash alcohol import duties impacts domestic spirits industry

As consumers enjoy lower prices and a larger selection, India's domestic alcohol producers are facing fresh fears. (Representative image)

By Avneet Singh 

A new trade agreement involving India and the UK will reduce import chargeable customs duties in an incremental manner over a 10-year timeline. While reductions in tariffs and ease of trade are generally favourable for trade between two nations, there will be profound implications for Indian spirits and homegrown brands. While this area of change will appeal to the segment of consumers who purchase high-range priced liquors, it raises matters of concern for the domestic industry and the economy at large. Domestic players, already grappling with regulations, inconsistent state excise processes, and limited marketing capabilities, now face increased competition from well-established global brands, which will presumably be selling their products free of tariffs.

As consumers enjoy lower prices and a larger selection, India's domestic alcohol producers are facing fresh fears. This is more than just a trade milestone for them; it could be described as a watershed moment for the future of the homegrown industry. The import duty reduction, combined with state-level excise duties, could greatly alter the competitive landscape. Imported brands, subjected to the reduced tariffs, could achieve an absolute price advantage over Indian brands. Given that excise duties in some states make up 70–80% of the Maximum Retail Price (MRP) of alcoholic beverages, the combined effect could make domestic products less competitive, especially in the premium end of the market.

The Profitability Challenge for Indian Spirits

To remain competitive, Indian brands might be compelled to recalibrate their pricing strategies, a move that could precipitate a serious erosion of profitability and operating margins. The Indian alcoholic beverage industry already contends with one of the highest tax burdens globally—taxes account for nearly 65–80% of the final retail price of alcoholic beverages in India, depending on the state, according to Confederation of Indian Alcoholic Beverage Companies (CIABC) data. Moreover, Indian alcobev firms are subject to multiple layers of taxation, including state excise duties, VAT, label registration fees, and licensing costs, which cumulatively constrain their financial flexibility.

Regulatory Fragmentation and Its Ripple Effect on SMEs

In addition, the industry is hobbled by significant compliance overheads and a fragmented distribution ecosystem, where regulatory variations across states create logistical inefficiencies and increased costs. The working capital cycle is often elongated due to delayed payments from distributors and high inventory carrying costs, disproportionately affecting small and medium-sized enterprises (SMEs). For these players, who typically operate on EBITDA margins as low as 10–12%, any downward pressure on pricing can be economically unsustainable.

Homegrown alcohol brands further deepen this impact by fostering employment and economic activity beyond just taxation. They generate direct jobs in manufacturing, distribution, and retail, while also supporting ancillary industries like agriculture, packaging, and logistics. In rural and semi-urban areas, where employment options are limited, these brands often act as significant sources of livelihood.

Foreign Liquor Flows Freely, But at What Cost?

Indian spirits—particularly whisky, rum, and country liquor—have only a marginal share in global markets. According to data from the Agricultural and Processed Food Products Export Development Authority (APEDA), India exported alcoholic beverages worth USD 322 million in FY 2022–23, with Indian-made foreign liquor (IMFL) comprising a major portion. In comparison, the UK exported over £6.2 billion worth of whisky alone in 2022, highlighting the asymmetry in export capacities. The entry of global players with deep pockets, established branding, and premium positioning will make it impossible for Indian brands to compete against them and scale sustainably or capture premium market share. This reduced market share could ultimately lead to downsizing, plant closures, and stagnation in rural supply chains that depend on the sector for income. If local manufacturers lose market share, states could face a decline in excise revenue and employment generation.

What Should India Do?

Slashing import duties isn’t wrong. In fact, it signals India’s ambition to integrate with global markets and expand consumer choices. However, if liberalisation is to work in India’s favour, it must come with strategic guardrails. To strike a balance, the government must accompany tariff reductions with supportive policies for domestic companies. This can include better access to capital; offering low-interest loans or grant schemes under existing initiatives like Make in India or PM Mudra Yojana can help homegrown brands and distillers upgrade facilities and scale operations. Tax incentives or subsidies for innovation and product diversification could encourage brands to develop premium offerings that match global standards.

(Avneet Singh, Founder and CEO, Medusa Beverages.)

Views are personal and do not represent the stand of this publication.