Report A Sector Poised for Growth

A Sector Poised for Growth

The non-alcoholic beverages sector covers a large range of products – fruit and vegetable juices, tea, coffee, water, milk, dairy-based drinks, carbonated drinks, health and nutrition drinks, energy drinks, organic drinks. In India, packaged water and carbonated soft drinks account for the bulk of this sector. Nearly 80 per cent of the sector remains non-corporate or informal.

The Indian Council for Research on International Economic Relations (ICRIER), an economic policy think-tank, was commissioned by the Indian Beverage Association (IBA) to study the ‘Contribution of NonAlcoholic Beverage Sector to Indian Economic Growth and Atmanirbhar Bharat’. According to the study, this sector contributes significantly to the Indian economy in terms of value addition and job creation. The sector is projected to grow to Rs 1,500 billion in 2030 (up from Rs 670 billion in 2019) at a CAGR of over 8% (down from 13% in the previous decade) in realistic conditions. The total job creation in this sector is estimated to be 700,000, from both upstream and downstream operations.

Even if this is tiny compared to the global nonalcoholic beverage industry (estimated at Rs. 95,000 billion in 2019) and exports stood at Rs. 240 million in 2020, India has the potential to become a global nonalcoholic beverage hub.

This optimism is drawn from the abundant endowments of raw materials, the priority afforded to the food processing sector, current low per capita consumption (21.36 litres in 2018), an under-tapped market of the middle class and young, long summers, increased spending by Indians on packaged products, the post-pandemic trend towards ‘conscious consumption’ – a preference for healthier, low sugar, non-carbonated beverages – and a ‘global pivot’ towards health, wellness and mindfulness.

The study identifies the key challenge to be an exorbitant goods tax which fuels unfair competition from the informal sector and counterfeit products. The burden of compensation cess and the additional sin tax on aerated beverages deals a blow to the consumer. The study reports a decline in the actual tax revenue collected from this sector.

Lower income groups bear the brunt of the tax burden. India may be one of the largest markets for mineral and packaged water, but this drinking water is taxed

as a luxury. Whereas in some Asian countries, it is a necessity in line with sustainable development goals.

ICRIER recommended a rationalisation of the tax regimes with moderate and simple taxes to replace the many tax regimes. This was acknowledged by S. Pandey, Secretary (Food and Public Distribution) at the Ministry of Consumer Affairs who said, “This is a winner. By foregoing some tax revenue, the government will not be a loser.”

Government subsidies and incentives for Mega Food Parks have helped spark off infrastructure development which is still a work in progress. The supply chain is very fragmented and the logistics costs are still high. These issues are closely interlinked and can only be solved in tandem.

A more holistic view by the government on regulatory policies in this sector would reduce supply chain wastages, potentially increase farmers’ income, enhance investment in research and development and innovation, intensify the ‘Brand India’ labelling and allow the organized segment to grow by declaring war on counterfeits – a win-win for all stakeholders. IBA Secretary General J. P. Meena said, “This study provides a policy roadmap for the Government to focus on key levers to connect the Indian food producers to the global supply chains. India has the potential to be the world leader in beverages processing through enabling policies and fiscal incentives.”

The measures being taken in this sector are expected to reduce food wastage from its current levels – a staggering 30% – and this value addition is expected to hugely benefit the farmers.

This study is expected to be a roadmap for the government and industry to work hand in hand to realise the true potential of the sector. Growth in this sector can make all its stakeholders, from farmers to small and medium producers, supply chain agents and consumers, a part of the vision for India @ 2047. L

This sector contributes significantly to the Indian economy in terms of value addition and job creation.