Industry Speaks

Inclusion of alcohol in GST could curb illicit sale: USL

Dated 23rd February, 2016

 

Inclusion of alcohol in GST could curb illicit sale: USLAbanti Sankaranarayanan, Head - coporate relations and luxury, United Spirits   , said the inclusion of alcohol in the GST would help curb it's illicit sale. She feels that the country also stands to benefit by way of added revenues if the industry is included in GST.

Talking about stringent and irregular regulations across the country she told, "There requires to be movement away from physical regulations towards online regulations and bringing uniformity and consistent regulatory regime between different states".

According to Sankaranarayanan, there are various demographic and economic factors that indicate that India is one of the most attractive countries for the alcohol industry. She expects an eight to ten percent compound annual growth rate (CAGR) in the next five years for the sector. Below is the transcript of Abanti Sankaranarayanan’s interview with Sonia Shenoy and Anuj Singhal.

Sonia: We've seen a steady revenue growth in quarter three for the company United Spirits (USL). Just take us through the performance of how the industry has done for the quarter gone by.

A: I just want to really paint the bigger picture here first to say that currently India presents one of the most attractive opportunities in the world for alcohol-beverage industry. The fundamentals of both demographic as well as economic factors are very strong and therefore this industry expects a Compound Annual Growth Rate (CAGR) of anywhere between 8-10 percent over the next five years. So, it is really a very attractive market if you look at other markets around the world.

Sonia: What about the company itself. We've noticed steady pick up in The Prestige segment over the last 9 months for USL which has likely helped in holding the margins. Can we expect continued focus in the segment and what plans for The Prestige segment now?

A: I want to start by saying that premiumisation is a route to margin enhancement. It also plays into the fundamental consumer trend of up-trading that we are seeing in the alcohol industry and one of the key elements of our strategy is to focus on a fewer set of brands to invest behind these core brands. We have had brands such as McDowell's No.1 as well as Royal Challenge which have been relaunched in the market with completely new packaging. And that is just one of the manifestations of the investment in our core brands that we are doing. So, the whole idea really is to focus on a few brands, to focus on Prestige and above and to make sure that with this focus we are able to garner the opportunity that the consumer trend of premiumisation offers.

Sonia: Since Budget is around the corner what are your expectations from the Budget itself and how are you anticipating growth? Any comments on the impending Goods and Services Tax (GST) bill and how you are reading the proposals?

A: The regulatory challenges have always been there for this industry. So, it is not a new thing for us and we just have to work through those. We respect the regulatory environment in which we operate and therefore we will work through those and just as you have seen our performance in the last couple of quarters we expect to continue on that trajectory. I just want to add one point here, if I may, which is that one of the big things that can unlock growth not just for United Spirits but for the alcohol industry as a whole is the GST and as an industry we absolutely welcome the GST and what it represents in terms of a unified and simplified national market for taxes. But what we think is a bit of a disappointment if I may call it for us is the fact that alcohol is excluded at this point in time from the GST bill.

We feel that this is something which absolutely should be included. It is in line with the recommendations of the chief economic advisor's panel report and there are big benefits. Not just for the industry, in fact more so for the country as a whole if alcohol is included in GST.

So, for instance for every 10 percent point of GST the country as a whole gets to earn an additional Rs 10,000 crore of revenue. So, for instance if GST rate is 20 percent then that is Rs 20,000 crore additional revenue for the country, for the centre as well as the state. Secondly inclusion of alcohol in GST would make sure that it curbs illicit, unrecorded and really brings in compliance into this industry and that would be quite a pioneering legacy that the parliament and this government can leave behind. So, one of the things that I would really appeal for on behalf of the industry is the inclusion of alcohol in the GST.

Sonia: But you have spoken about the regulatory challenges in the country particularly in states like Uttarakhand and Chhattisgarh. Can you just throw some more light on how the company is dealing with these issues?

A: You need to see this in the broader context of the regulatory environment in which the alcohol industry operates. As you might know alcohol is a state subject and therefore we are subject to different regulatory regimes across the 32 states of this country and one of the things about our regulatory environment is that there is a lot of regulation and the regulation is not uniform and consistent between different states and as a result of that there are many complexities in the way that we run our business and there are a lot of business as usual operational regulations that impact our industry. These are to do with licensing, with excise policy, pricing, even something as simple as registration of the labels of our brands every year.

So, that is the overall difficult environment in which we operate and what we have been doing is really engaging as an industry body with the states. And really talking to them about bringing this whole ease of doing business thinking into our industry as well and what our advocacy is that alcohol we understand has to be regulated because of the nature of the product but we also believe that this requires to be a movement away from excessive physical regulation to more technology driven online regulation and there needs to be a uniform consistent regulatory regime between different states and that is the advocacy that we have been doing as a industry with the different states.

It is all really about ease of doing business as well as, if I may add, the whole platform of Make in India because this industry is a big proponent of Make in India and therefore there is no reason really why the same principles of ease of doing business should not come into alcohol as well.

(This interview is published in Money Control on 23 Feb, 2016)