Far beyond the intense competition, from the three-tier system to the control state bureaucracies, it’s fair to say that the Indian alcohol market is difficult to navigate, for any brand, imported or domestic. So too are the constantly changing consumer preferences, which have been historically shaped by the British Era years and have constantly evolved ever since.

Recently, many Indian state governments like Maharashtra, West Bengal and Haryana have collectively moved towards making progressive policy reforms within the once rigidly controlled alcohol industry, for the smoother running of business and to of course, bolster the impact of the ongoing pandemic.

It is becoming evident that in order to make the world’s third-largest alcohol market even more business-friendly and responsible, it is imperative for the state excise and alcohol industry to work in sync. In an effort to drive this union and clear the grey area, Brewer World is conducting a special series to learn more about the intricate workings of the beer industry in India and gain a deeper understanding of the current state excise policies and their progressive approach towards constantly changing business environments in today’s times, more specifically with respect to beer.

Our last exclusive interaction with Ms. Valsa Nair Singh, Principal Secretary of Tourism, Civil Aviation and Maharashtra Excise to understand how Maharashtra has set the example for other states by being the first to apply a broad-minded outlook and liberal approach towards reforming its excise policies. This week, we continue to explore this subject with Mr. Venkat Raja I.A.S., Additional Commissioner of Excise, Government of Karnataka – a state that’s home to a significant number of the country’s alcohol consumers.

As a prominent member of an institutional unit that came into existence during the year 1968 after the relaxation of prohibition in Karnataka, Mr. Venkat Raja, a young, dynamic IAS officer – who is posted as the Additional Commissioner of Excise, Government of Karnataka. Under his direction and supervision, the Karnataka State Excise continues to move towards its mission of implementing policies and procedures that regulate the manufacture, transport, possession, sale and other activities of trade in spirit, spirituous preparations, potable liquor and other intoxicants while closely monitoring public health and safety and the collection of associated departments’ taxes. These regulations ensure the proper flow of revenues to the State exchequer. Thus, the state of Karnataka today, is the second-largest revenue-earning department in the state functioning under the administrative control of the Finance Department.

The Karnataka State Excise has been applauded for paving the way for beer culture to develop in India’s Silicon Valley. Today, Bengaluru has the highest number of pubs and microbreweries as compared to any other state in India and has been a pioneering trendsetter in encouraging and enabling the advancement of the craft brewing industry and other homegrown beer labels. Many leading beer industry players have congratulated the incredibly tech-savvy Karnataka State Excise for its transparency, structure and organisation policies when it comes to managing the entire distribution and supply channel.

Every time we interact as a government entity or as officers from the department with fraternities of the industry, it’s always a two-way learning process. In a heavily regulated market, it’s easy for assumptions to arise – but whenever I have had a conversation with industry players and allied partners like Brewer World, something new and progressive always comes up. Platforms like these give government bodies like us a good insight into what the industry is looking for as much as it does to help us tell industry players what exactly our intentions behind policy-making are. – Venkat Raja, Additional Commissioner of Excise, Government of Karnataka  

Here are some excerpts from Brewer World Editorial’s exclusive conversation with Mr. Venkat on current consumption patterns of beer in Karnataka, the taxation structure of beer and the policymaking involved and some commonly raised concerns by key players of the Karnataka beer economy.

On The Current Beer Consumption Situation in Karnataka  

Bengaluru, the capital city of Karnataka, also known as the Silicon Valley and the Pub City of India has, for years, been renowned for its dazzling nightlife and draft beer culture, long before microbreweries arrived. With a large part of India’s craft beer revolution bubbling over this metropolitan city and pouring into other prominent states along with its sophisticated pub culture that’s attractive to foreign embassies and local tourists alike – one would assume that beer consumption at Karnataka would be at its peak. Unfortunately, there appears to have been a slump over the last two years, even before the pandemic started.

And it has nothing to do with taxes.

“Karnataka has a good coastline and northern parts of the state are hotter than areas like Malnad which are closer to the Western Ghats area and Southern Karnataka,” said Mr. Venkat. “Under usual circumstances, the demand for beverages like beer which are preferred to be consumed cold is higher in coastal areas where the temperature is warm and tropical.

Unfortunately, the state’s important tourist destinations such as Coorg and other coastal spots have faced prolonged rainfall and floods continuously over the last two to three years. These conditions have naturally cut short the tourist period – a factor that must be acknowledged as a lot of consumption in Karnataka and everywhere else is tourist-centric. Northern Karnataka districts like Belgaum which is known to be a big commercial centre have also faced similar situations.

This was a cyclical series of events. Owing to the loss of valuables and of course, the lowered temperatures because of the constant floods – beer, being a luxury or lifestyle commodity and not an essential one, has seen a consequent drop in consumption.”

He further continued to explain the impact of the pandemic on beer’s market performance. “Tourism has taken an even bigger hit because of the pandemic. Beer is a lifestyle beverage – one that involves a certain ambiance or social setting involving friends and families. So in these given circumstances, when there is no floating population, fewer people traveling in and out of the state, and a complete halt on conferences or festivals or any other congregations – the consumption of beer has decreased significantly – even more so after the recent pandemic lockdown and restrictions and also the fewer social gatherings we have all been subjected to over the last one year,” explained Mr. Venkat.

According to Mr. Venkat, the current revenue generated from the bottled beer market constitutes anything between 10 to 15% of the total revenue of the state. This may vary from year to year depending upon the situation.

On Having State-Specific Excise Policies

With all of India’s 29 states and 7 union territories having individual excise rules, brands both national and international often face difficulties navigating through this heavily regulated landscape. “Does it not pose as a bottleneck in business?” we asked Mr. Venkat.  “There are three lists in the Indian Constitution – the Centre List, the State List and the Concurrent List,” he elaborated. “Alcohol is purely a state matter. And for the same reasons, states like Gujarat and Bihar have enacted prohibition in their respective states because of the powers given to them through the constitution.

One cannot compare any two states and their economies and sizes. And I think every state in India has a different originality – with different history, cultures and different languages as well. So in my opinion, one policy for the regulation of alcohol may not be advisable.”

On Curbing Bootlegging and Other Illegal Practices

With alcohol being cheaper in some of the neighbouring states, we were curious to know what the overall state of bootlegging in Karnataka is right now.

“Today, the chances of liquor made in any neighbouring states being found in Bengaluru are highly unlikely. At least I, as an officer of the department and an individual haven’t come across such a case,” said Mr. Venkat without a moment’s hesitation.

He further listed out the various measures taken by the state to monitor the influx of bootleg liquor to the state – such as year-long training programmes and an ever-vigilant check post system. “Finding liquor that’s not for sale in the state is a serious punishable offence,” stated Mr. Venkat. “However, while from a legal and department point of view, we are well-equipped to curb such practices, we cannot ever say there won’t be a case of someone trying to take advantage of the situation.”

“Throughout the history of humanity, taxes have been imposed on goods, and there have been several evidences of people trying to evade them. The state machinery is constantly trying to ensure that there is no leakage in taxes.” – Venkat Raja, Additional Commissioner of Excise, Government of Karnataka  

On Karnataka’s Current Taxation on Alcohol and Beer in India

Mr. Venkat confirmed that there have very few cases of dispute as far as taxation is concerned. “Karnataka has already stated that anything under 8% is in a different bracket. Anything between 8 to 16% – like fortified wines and other wines come under a different bracket for taxation. 16% and up to 42% is in a different bracket. Because of this trifurcation as per the alcohol content, there are different slabs altogether,” explained Mr. Venkat. “And while things might be different globally, traditionally in India, all the taxation such as VAT and GST has largely been on the valuation, which is declared by the producer – where there is no room left for interpretation. The MRP is a line that leaves very little room for interpretation. Different states might be doing different things, but Karnataka believes that this is a simple way where the producers benefit just as much as the department.”

Mr. Venkat also emphasised the importance of litigation in a strongly regulated article like alcohol. “In my opinion, the simpler the laws, the better it is for the industry as it ensures a certain amount of stability for all. On the other hand, if the taxation changes every year, it will get very difficult for people to plan their businesses five years from now. Those collaborating with foreign brands would always find themselves in a fix wherein they have to constantly guess what is going to happen every year.

In my past interactions with both breweries and distilleries, I have seen that everyone is happy with the current taxation policies as it is clear for everyone. While there have been certain requests to expand or contract these policies, I am yet to hear a suggestion of the taxation being alcohol percentage-based.”

On The Introduction of New Categories for Beer (Eg: Super Mild Beer)

“It is important to keep in mind the states’ unique geographical location,” said Mr. Venkat, when we broached the subject of some states being allowed taxation exemption upon the introduction of a new category of low alcohol beers. “States like Delhi and Haryana are surrounded by four or five states, so the policies in these states will also be very competitive in their specific geographic locations.

That being said, I’m sure the system is under evolution all the time and I’m sure there may be a time in the future when these new categories can be introduced. For the time being, we are open to receiving such proposals and having an open discussion with the industry where we can probably come up with a new policy.”

On The Current Brand Registration Paperwork Process

A few years ago, you’d hear brands complaining about the tedious paperwork involved in the label registration process. Not anymore. Karnataka has recently made headlines for introducing new reforms for a smoother business flow.

“With label registration now coming under the Karnataka Sakala Services Act (citizen-centric time-bound service delivery system) – the brand registration process has been completely digitised and made online and gets approved within 30 days of the date of registration. “The only catch here, perhaps is that for 21 days, they have to put it on a notice board so that nobody has an objection, which is a rule everywhere,” said Mr. Venkat.

“Furthermore, there are more than 38 services we give as a Department under Sakala. There are probably very few states who can offer this level of excise services under a citizen-centric time-bound delivery Act. The timelines are very well defined and everything including the renewal of any brewery or distillery license is online now. So the paperwork is practically gone. With everything being online, an applicant can also track at which stage their application is and for how many days.”

Revealing that the Department of Industrial Policy & Promotion from Delhi had recently applauded the Karnataka State Excise Department for the progress it had made in the ease of doing business, Mr. Venkat also mentioned how several other states have actually visited Karnataka where he himself chaired many discussions regarding microbrewery policies and the overall brand registration process. “It’s a great system because it’s transparent and it has received special appreciation, especially in the last one year as it has saved many the hassle of coming to office,” he said.

On Introducing New Policies For Karnataka’s Craft Beer Segment

With Karnataka’s capital being home to a large chunk of some of the country’s top watering holes, we dug a little further to see if there were any new reforms in store for the microbreweries.

Here’s what we found:

i. Supply of Kegged Beers in Karnataka

Strangely enough, there is only one microbrewery in Karnataka that produces and distributes freshly crafted beer via kegs. “Why is it that kegging has been slow to pick up amongst the other microbreweries?” we asked.

“One of the reasons that play an important factor, in my opinion – is that the life of kegged beer is 21 days usually,” opined Mr. Venkat. “Hence there is a certain risk involved as well.”

Mr. Venkat also pointed out that it makes more sense for certain states with fewer options to enjoy fresh craft beer to look into kegging more seriously. “With Bengaluru being the largest market for craft beer – with more than 50 operating microbreweries, anyone craving freshly crafted beer will have the option to go to a microbrewery also. But the microbrewery culture has not yet started in Delhi. In Mumbai and Pune as well, the number of microbreweries is not as much as it is in Bengaluru. So I think the reason kegging has been introduced as a policy in Delhi may have a lot to do with this as well,” he said.

ii. Making The Growler Policy Permanent In Karnataka

“Growlers were only allowed temporarily during the lockdown last year upon the request of the microbreweries,” clarified Mr. Venkat. “Because of the tap-and-consume system that microbreweries have and since people couldn’t visit their premises at that time, the government decided to allow the implementation of growlers for a brief while to help them sustain their business.

However, again, I would say that the life of beer from a microbrewery will be 24 hours to 48 hours. So it’s very difficult to permanently bring this in as a culture where you bring craft beer home and consume it. Beer is like other perishable items so a lot of thought process should go into this.”

iii. Implementing Crowler Packaging Formats & Giving Microbreweries Access to Retail

Taking a moment to appreciate the brands who have been brave enough to be the first to experiment in the crowler territory, Mr. Venkat said: “I know they have received a lot of appreciation as well, so I hope it will encourage other microbreweries also to come in.

The government will never stop microbreweries from packaging their beer in crowlers but they have to take a brewery license for it. It is important to remember that for a microbrewery, taxation is per litre-based, whereas for bottled beers, it is based on MRP. These are two different kinds of taxation and cannot be compared. The choice is always open to microbreweries to implement crowlers but they will be treated as a brewery itself. They will have to function as an actual brewery. This will entail economies of scale and transportation costs. A production scale should be in place to capture that much of the market.”

As for microbreweries wanting to go to retail, Mr. Venkat believes there are infinite possibilities. However, he also stressed the importance of having a discussion to weigh the pros and cons. “Because this is a regulated article, the taxation structure along with its safety, regulatory and prohibition aspects have to be looked into as well. As a state that has been a pioneer in many reforms, it is absolutely essential to fool proof every policy so that we can uphold our integrity in front of other states coming to us to benefit from our advice. If we do things in a haphazard manner, both the Department and Karnataka as a whole will not be looked upon very well by other states,” he said.

iv. Availing Taxation Benefits For Using Agricultural Products

“Any edible product, including hard liquor will be produced from an agricultural product. So the list will be endless,” said Mr. Venkat. “The Department, however, has taken an active step to incentivise the wine market because certain parts of Northern Karnataka have a high production capacity. The state has given certain advantages to the state’s Wine Board to encourage the local winemakers as a majority of this production is more likely to be consumed in the neighbouring states. Sometimes, the price you get for produce across states may not be at par with what they expect. But here since it is a state matter, the wine-making process can be looked into so that it can be priced better. That’s why it is always better to produce and consume locally.

If the farmers get support from the government, it will encourage the establishment of industries in Karnataka.

v. Carrying Forward Advance Taxation and Other Reforms

“As a department, we only encourage microbreweries to pay only 50% of their installed capacity in advance, not full. This is just to ensure that they use it for the purpose they are paying for. If the capacity of a microbrewery is 100 litres, I don’t think it’s unfair to expect them to produce 50 litres in a year.” said Mr. Venkat promptly when asked about whether some struggling microbreweries may be allowed to carry a part of their unutilised taxation forward onto the next year. “When a person is ready to invest so much in a microbrewery, why can’t the government expect them to pay just half the installed capacity?”

On The Implementation of E-commerce For Alcohol in Karnataka

With states like West Bengal and Maharashtra implementing online delivery of alcohol, Karnataka has been slow to take off. There have been lots of discussions about the pros and cons of online aggregation models, and it seems the Karnataka state excise too, is taking its time to analyse what its implementation would entail.

“As of now the proposal is nowhere on the horizon and the Honourable Excise Minister also mentioned this in the recent press conference,” confirmed Mr. Venkat. “Firstly, I would also like to point out that the other states who have currently implemented the online aggregation model have done it as a temporary approach only, to support businesses during the pandemic but they are yet to implement this in their rules and their Acts. Only when a notification becomes an Act can we say that a rule has been put in place. I think it would be best to wait till the situation returns to normal when everything is open to see what the real issue is.

Secondly, one of the most important areas of concern of the Government and Department will always be safety, prohibition and regulation of this article.”

When asked about whether he was worried about Karnataka falling behind on revenue generation, Mr. Venkat said: As of now, the revenues and the Department have not been hit last year. In terms of sales, the Department has done fairly well.”

On Building Awareness for The Responsible Consumption of Alcohol

While the Indian Constitution entrusts the state legislatures with the power to draft rules governing the business of alcohol, it also affixes a tremendous amount of responsibility on the state to raise the standard of public health and standard of living. And on that front, the Karnataka Department has been extremely diligent and watchful.

“All our warning messages are printed in the local language using a distinctly-sized font as per the Honourable court’s guidelines,” said Mr. Venkat. “Our Department has followed through in all aspects of responsible drinking, especially over the last few years: be it drinking only in licensed premises or messages about not drinking when driving or preventing any other kind of social stigmas. Also, all the pubs, bars, retail licensees and other commercial establishments are governed by local authorities (Gram Panchayat, Town Councils, Municipalities and City Corporations). We have had several drives to encourage consumers to not throw waste like bottles and tetra packs anywhere while we also have policies stating that the material used by the producer should be compliant with the FSSAI and not be hazardous to the environment as well. I’m sure we can do more once the pandemic is over.”

“Safety of the consumers and citizens is of foremost importance.” – Venkat Raja, Additional Commissioner of Excise, Government of Karnataka  

Finally thanking Mr. I.S.N. Prasad, Additional Chief Secretary, Finance, Government of Karnataka whose leadership spearheaded many of Karnataka’s excise reforms – and Dr. Lokesh M. Excise Commissioner who is the guiding light to the Excise Department – Mr. Venkat talked about how enriching an experience it has been for him as an individual, working for the Department.

“Alcohol is such a prohibited article related to social taboos and certain beliefs. But I think the Department is doing a great job. In the last few years there have been many reforms such as online renewal and registration systems that have been properly codified and put into an Act, permanently,” he declared. “The Government guarantees an open market and a stable policy and it extends all its support to make the procedures and rules more investor-friendly. A lot of brands have their facilities in Karnataka, both global and Indian brands have set up offices in Karnataka and they are doing pretty well.

I can also confidently say that with the majority of the paperwork being shifted online, it has also become very easy to apply for a microbrewery license. It has been over ten years since the first microbrewery came up in Karnataka and this isn’t a difficult task for us at all. We are a Department that looks forward to interacting and learn from the alcohol industry and are always ready to lend an open ear to anyone coming forward with either criticism or new suggestions to make the system better. No one should fear to invest in Karnataka’s alcohol industry; the doors to our state are open for everyone.” said Mr. Venkat, signing off.

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