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The alco-bev industry in Karnataka needs urgent policy support for improving in EoDB parameters

06/03/2020

The Karnataka government imposes has strictest rules for the Alco-Bev industry compared to other states

The Alco-bev industry of Karnataka is the biggest revenue contributor to the government exchequer and requires urgent policy support for uplifting it like other industries in the state.

This backing has become even more pertinent as Karnataka’s capital Bengaluru has recently been included as the fourth city for working out India’s ranking in the World Bank’s Ease of Doing Business (EoDB) Index.

At present, India is ranked 77th in the list and it now aspires to be one of the top 50 countries with cities like Bengaluru expected to play a great role in enabling this improvement.

Policy support to enhance ease of doing business for alco-bev industry will further boost Karnataka’s GDP with its large contribution to the state’s revenue earnings. As per budget estimates, the total excise collections by the Alco-Bev industry in Karnataka for 2018-19 is Rs 1.4 lakh crores.

Further, this sector also impacts the revenues of two other industry sectors due to their close inter-linkages– sugar and tourism. Sugar is the input industry as alcohol is obtained from a sugar by-product called molasses. Tourism industry acts as the output and is the consumer of alcohol. Hence, any reform in the alco-Bev industry directly impacts the entire value chain – from sugar farmers to the tourist services.

However, despite its important role in generating revenues for the state, the industry operates under stringent regulations and arduous licensing process, which not just impacts EoDB of the alco-Bev industry but also for other interlinked industry sectors such as sugar and tourism.

While it is necessary to change these archaic Excise rules, some of which date back to the pre-Independence era, at the same time it is also important to sensitise law enforcement officials and Police about their approach towards the industry.

Physical multiple clearances

Even by some conservative estimates, about 44 procedures and approvals are necessary for production and movement of alcohol in a state.

Single window clearance for all documents pertaining to alco-Bev production is therefore the need of the hour. Currently, the list of licences and approvals is so massive that by the time one licence could be attained the other is up for renewal again.

The licencing procedure should become completely online. Currently, only the fees payment and document submission process is done online but the new licence documents still need to be collected physically from the Excise Body.

Extreme Licencing framework

The alcohol industry in India operates under different rules in each state. Rules in Karnataka are vastly different from those in Delhi or Maharashtra.

Compared to other states, Karnataka also imposes the strictest rules, which dampens business sentiments.

To cite an example, as recently as in 2018, a rule was imposed on bars and liquor outlets to obtain licences for playing recorded music. Since 99 percent of these outlets do not possess the documents required to get the licence for playing ‘recorded music’, their very existence has come under threat.

Margins under threat

The Karnataka government hasn’t issued bar licences for the last 15 years. This has led to a huge shortage and the prices of licences going through the roof.

For the industry players, the rising overhead costs, the fact they are encouraged to pick up more alcohol to meet the government’s Excise targets along with the huge amounts they need to cough up for procuring bar licences from the existing licence holders, have further squeezed their margins.

Conclusion: For alcohol industry players, it has become almost next to impossible to operate in Karnataka. Firstly, they are not getting new licences for the last 15 years. This has forced them to invest huge amounts to obtain it and then when they finally manage to get a licence with great difficulty, they are slapped with stringent restrictions and subject to severe rules.

The Karnataka government, hence, needs to look at its existing policy framework with a new lens. It needs to weed out the current deterrents to improvement in ease-of-doing-business for those industries which are inter-linked and together contribute significantly to the state’s economy, Alco-Bev being among the foremost.

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Authored by: Mr. Amit Roy, Thinktanc, Partner

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