Karnataka’s beer market is facing a significant shake-up as the state government’s recent hike in excise duties has led to a sharp rise in beer prices. The price of a 650ml bottle has increased by Rs 10-45, depending on the brand. The hike, which took effect on January 20, 2025, has caused a series of challenges for both consumers and vendors, with reports of a 10% dip in sales and a potential shortage of supply in the coming weeks.
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Government’s Excise Duty Hike: A Financial Move
The excise duty increase, which saw rates rise from 185% to 195% of the billing price or Rs 130 per bulk litre, is part of the state government’s attempt to address a revenue shortfall in the excise department. Despite record liquor sales earlier in the financial year, the state is looking to replenish its coffers through this duty adjustment. For example, a bottle of beer previously priced at Rs 100 is now available for Rs 145, and one costing Rs 230 now comes with a price tag of Rs 240.
This increase has been met with resistance from various sectors, as the market grapples with the financial impact on both consumers and businesses.
Impact on Beer Vendors and Merchants
The price hike has already started affecting sales across the state. According to Karunakar Hegde, president of the Federation of Wine Merchants’ Associations, beer sales have dropped by at least 10%. “The price hike has come at a time when market conditions are not favorable,” Hegde noted. “For the past week, there was no supply of beer due to the price hike, and breweries began slowing down production well in advance. This has caused a shortage, and as a result, business is taking a hit.”
Beer vendors are also facing challenges as they deal with reduced stock and a slowdown in production. The anticipated shortage of beer in the market will last for at least 45 days as manufacturers adjust their packaging and pricing. This disruption is affecting the market severely, with many merchants struggling to maintain their usual sales volume.
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Challenges for the Pub Industry
The pub industry is also feeling the weight of the excise duty hike, with several pub owners in popular areas like Koramangala voicing concerns. Many pubs have reported a noticeable drop in the number of party-goers, a trend attributed to job insecurities and fears of layoffs. These financial pressures are making people more cautious with their spending, directly impacting the pub sector.
One pub chain owner stated, “Expenses are rising by nearly 10% annually, while profits continue to shrink. The increase in beer prices has made it even harder for us to absorb these losses.” Additionally, the intense competition in the pub industry and the rising cost of goods are squeezing businesses that are already struggling. Many pubs cannot pass on the cost increases to customers without risking further declines in foot traffic.
A Policy Decision in the Works
The excise duty hike, although disruptive, was part of a broader policy shift announced in the state budget of March 2024. A senior excise official explained that this hike was designed to update outdated taxation policies. While Indian-Made Liquor (IML) duties had seen regular adjustments, beer duties had remained largely unchanged for several years, creating a disparity that the government sought to rectify.
The government had engaged with stakeholders, including public and merchant representatives, before finalizing the new taxation policies. Despite the discussions, the immediate impact of the duty hike has been significant.
Summing Up
Karnataka’s beer industry is facing a complex set of challenges following the recent excise duty hike. While the government aims to bridge a revenue gap, the increase in beer prices has caused a slowdown in production, a reduction in sales, and a potential shortage of stock in the market. Vendors and pub owners, already under financial strain, are finding it difficult to absorb the increased costs or pass them on to customers.
As the situation unfolds, it remains to be seen how the industry will navigate these changes. While the government’s move addresses a fiscal need, it has created a brewing crisis for both beer lovers and the businesses that serve them.
