Why it's fewer cheers for beer in Karnataka

India Today

19-05-2025

A revision in duty rates on alcoholic beverages in Karnataka took effect on May 15, hiking the additional excise duty (AED) on beer by 5 per cent while also tweaking rates on the lower priced categories of Indian-made liquor (IML), which includes spirits such as whiskey, rum and brandy.This was the third increase in AED on beer since 2023 besides a separate hike in excise duty this January.advertisementBeer companies say these duty increases in quick succession have put them in a quandary. 'The industry is in a dilemma about what to do— allow the market to shrink by retaining their margins or allow the market to grow but do away with their profitability,' says Vinod Giri, director general of the industry body Brewers Association of India (BAI).With the May 15 notification, AED on beer in Karnataka is currently at 200 per cent (calculated on the cost declared by the manufacturer), up from 175 per cent two years ago. Essentially, it will make retail prices of beer the highest in the southern region, adds Giri.In July 2023, the AED on beer was increased from 175 per cent to 185 per cent. The following year, in February, it was revised to 195 per cent. Now, on May 15, the new AED rate of 200 per cent on beer became applicable.advertisementMeanwhile, in January, the ED had been doubled from Rs 10 per bulk litre to Rs 20 on strong beer. Hence, with this notification, Karnataka now taxes beer in two slabs based on alcohol content—beers with 5 per cent alcohol and those with alcohol content of 5-8 per cent.According to Giri, the January-March quarter saw an 18 per cent dip in sales in Karnataka because of the excise duty hike. 'The industry has started shrinking in Karnataka after this January's increase in excise duty,' says Giri, whose organisation's founding members include companies such as United Breweries Ltd, AB InBev and Carlsberg, which together account for 85 per cent of beer sold in India.The beer industry in Karnataka grew 46 per cent in 2022-23 and 14 per cent in 2023-24. However, in 2024-25, sales grew by 1 per cent, he says.Meanwhile, beer sales in India were up 9.7 per cent in 2024-25, reaching a volume of 445 million cases. Karnataka is the second largest market for beer in the country, after Telangana, with about 55 million cases sold annually. It has 11 breweries, the most in India.A senior government official acknowledges that beer sales have taken a hit, but attributes it partly to a lag caused by a compliance change in which breweries in the state were mandated to declare ingredients, including the sugar content, on the label.advertisementOn pricing, the official points out that Karnataka leaves the declared price of an alcoholic beverage free for the manufacturer to decide, without a cap like in some other states. Owing to this, the declared prices of some beer brands tended to be higher in Karnataka than elsewhere, he says. The declared price is the basic price to which ED, AED, wholesale and retail margins are added to arrive at the maximum retail price.Given its large outlay on welfare schemes, Karnataka has been tapping several avenues to mop up revenue over the past two years. As part of this, it set out to restructure AED rates on alcoholic beverages. Out of Karnataka's 2024-25 budget projection of Rs 38,525 crore revenue from the excise department, the AED on hard liquor, or IML, was estimated at Rs 28,254 crore (73.34 per cent) while AED on beer was expected to net Rs 5,290 crore (13.73 per cent).As the government official explained it, prices of premium and super-premium IML brands were much higher in Karnataka compared to neighbouring states while it was the opposite in the case of bottom-rung brands. Hence, last year, the government lowered AED rates at the top-end in a bid to boost sales.advertisementNow, it has increased duty on the cheapest hard liquor brands to bring them on par. With the May 15 revision, the lowest three slabs will see an increase of Rs 15 per bottle while the fourth slab will go up by Rs 5. There are a total of 16 slabs for IML. 'There is good growth in the premium, especially super-premium IML segment,' says the official, adding that it will take at least a year to know if the policy has yielded the intended effect of netting higher revenue.Subscribe to India Today Magazine