A Sip into Tomorrow: A comprehensive analysis of the past and future of the Indian Alcohol industry

“Although the industry has a very positive economic impact, it is considered a social evil

Alcohol consumption in India has existed for many centuries but the pattern and amount of consumption has changed over time. The earliest examples of alcohol consumption include mentions of soma and sura (beverages believed to contain ethanol) in Vedic literature. In the past, alcohol consumption habits differed across different religions but in general, abstinence was considered a virtue among the general public. Hence, routine consumption of alcohol was uncommon. There was a slight change in the pattern after British rule because Indians were influenced by the European pattern of drinking and the colonial government allowed the local production of liquor. Fast forward to the present day, India is the fifth largest contributor to the global market revenues for alcohol and the alcohol beverages sector makes up about 2% of the nominal GDP in addition to employing about 80 lakh people.

Alcoholic beverages in India can be classified into 4 segments:

• IMFL (Indian Manufactured Foreign Liquor): These include foreign products like rum, brandy, and whiskey etc. manufactured locally in India with a licence from the government. The production of these forms of liquor is regulated by the government. Undoubtedly, it is one of the largest contributors to the revenues of the industry.
• Beer: Beer is one of the oldest alcoholic drinks in the world. It is formed by brewing and fermentation of starches from cereal grains. This beverage is mostly produced by large licensed breweries. Beer is becoming an increasingly popular product nowadays.
• Country liquor: India is geographically very diverse and has a large amount of natural resources. Some of these cheap raw materials can be processed in licensed distilleries and made into alcohol. Examples of country liquor include toddy and arrack etc. These products tend to have a command over their local markets and they tend to make high profits due to lower production costs.
• Illicit liquor: This segment of liquor production tends to operate outside the purview of the government as there is little to no regulation. They do not pay any form of taxes and this product is usually made by local players.

Foreign firms have also entered the Indian markets by operating joint ventures. Under this system, the product of international brands is produced by local manufacturers and they operate under a licensing system. This way a lot of international brands have entered the market and captured a huge share.

Now that we have a sufficient background about the alcohol industry, it is time to address the moral implications. Although the industry has a very positive economic impact, it is considered a social evil because it leads to an array of health problems including liver cirrhosis, leukemia, and an array of neuropsychiatric disorders. Besides this, it is a major cause of most on-road accidents. From the table below, we can observe that there has been a gradual decline in the percentage share of total road accidents caused by drinking and driving which means that the steps taken by the government may be working.

Data obtained from the Ministry of Road Transport & Highways

On the contrary, there are believed to be certain advantages as well. Moderate drinking is good for the heart and the circulatory system and probably protects against type 2 diabetes and gallstones. Quite a few prospective studies depict an inverse relation between moderate alcohol consumption and the risk of heart attack, stroke, and death from cardiovascular diseases. The biological reason for the same is the fact that it raises the HDL levels (or lipoproteins or good cholesterol) and higher HDL levels are associated with lower heart disease. The advantages are not restricted to the cardiovascular domain, a Nurses’ health study, showed that Type 2 diabetes and gallstones were more likely to occur in non-drinkers than in moderate drinkers. The emphasis lies on the word “moderate.” 

After weighing both sides of the equation, we can say that the alcohol industry is an essential component of the Indian Economy and even if there is a stigma surrounding it, eliminating its presence from India is not a practical possibility considering the value it generates and employment it provides. Moderation, not elimination is the solution.

The market size of the Indian alcohol industry is expected to grow to $64 billion in 5 years at a rate of 6.54% according to a report by the International Spirits and Wines Association of India (ISWAI). Several factors will drive the growth. One of these factors is changing lifestyles and rapid urbanization. There has been an increase in the disposable income of the Indian Middle class which has led to higher consumption expenditure on alcoholic goods. Consumer preferences are rapidly changing with people demanding higher quality alcohol that is reasonably priced. A survey by International Wine and Spirit Research (IWSR) found that younger consumers will most likely try new products like high-quality premium drinks. Currently, India is the third largest market for alcoholic beverages and it has the scope to grow further.

Since alcohol represents such a sprawling market others are trying to capitalize on this opportunity. Indian startups in the alcohol industry have grown from USD 777 million in February 2023 to 1.2 Billion in March 2023. This substantial growth depicts that people recognize the importance of this sector. Entrepreneurs are bringing innovative products to the market. They are trying to differentiate either by introducing new production methods or coming up with innovative new products to create a niche market. An example is Moonshine Meadery, which sells mead, a gluten-free beverage that is created by fermenting honey with various fruits and spices. They have gained a significant first-movers advantage in India by being the first firm in India to produce mead. 

Along with this, e-commerce adoption by these firms could also provide a huge boost by streamlining operations and providing a customer-centric approach.

To conclude, it is more necessary for us to moderate alcohol consumption rather than cut it out overall. Moderation depends on biological factors but it is very necessary as alcohol could be very destructive if its consumption is not regulated. Although the Indian industry is growing at a rapid pace and is currently the third-largest in the world, the global market is still dominated by foreign firms and there is a need for India to consolidate their brand position and create a unique selling proposition for its products. The Indian government has taken several steps to support this industry and their changing stance can serve as a huge catalyst to the growth of the industry. The alcohol industry is a very bright spot in the Indian economy.

By:-Aman Sanju

References:

1. https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/indian-alcoholic-beverage-industry-may-reach-64-billion-over-the-next-5-years/104893049
2. Indian Alcobev Industry: Indian alcoholic beverage industry may reach $64 billion over the next 5 years, ET Retail
3. Country profile on alcohol in India
4. https://pib.gov.in/Pressreleaseshare.aspx?PRID=1577134