PUNJAB EXCISE POLICY , JULY,22 - MARCH,23 ( 09 MONTHS ) SHIFTING PARADIGM

At the outset, I would like to express my sincere apology for the delay in writing analysis on the Punjab Excise Policy,2022 -23 announced a week back. My reasons for this delay include time taken in my endeavor for a scientific and thorough on- ground survey & research by meeting Punjab excise officials , traders , industry friends and HORECA people in Punjab so as to arrive on a logical conclusion .

I have promised that I shall try to dig out the positive points and ease of doing business from this policy.

?STATE GOVERNMENT

?The first stake holder is the state government. Punjab's economics revolves around the huge state exchequer collected through the state excise & VAT revenue. Although the ruling party remains the same in Delhi & Punjab but I must say that they seems to have learnt their lesson well in Delhi and therefore they have incorporated various clause , T & C in Punjab's policy which may not immediate trigger - off any situation like price war as it happened in Delhi.

That said, amid resistance from traditional traders ( especially on e - tender ) , department and political heavy - weights , this is going to be a litmus test of Punjab government. I can foresee that if Punjab government is successful in its endeavors, it can generate desired revenue of around?INR 9,500 Cr. but if state government succumbs to these pressure , it could end up with around INR 6000 - 6500 Cr. revenue which will be lower than the current years revenue of approx. INR 7,000 Cr.?

CUSTOMER

Punjab government has kept CONSUMER ( customer is king ) supreme while making this policy and therefore this analysis should start from customer perspective.

?For the next 09 months customer is going to enjoy a booze honeymoon in Punjab . A 650 ml bottle of Beer which is selling at Rs. 180 - 200/- shall come down to Rs. 100 - 110/- , a straight 40% reduction in the price. One 750 ml IMFL bottle which is selling at Rs.750/- at present , will come down to Rs. 450 - 500/- , slashing price to 30 % - 35% , similarly Wine , RTD and other alcoholic beverages shall become very affordable under this excise policy.

?MANUFACTURING COMPANIES

The second beneficiary from this excise policy seems to be the alcoholic beverages manufacturing companies in terms of logistics, investments and ease of doing business.

?1. LOGISTICS

?Since several decades, the manufacturing companies are supposed to open / appoint one L-1 distributor in each city of Punjab to address their WOD. In total 23 districts in Punjab, around 80 -90 wholesale licenses L-1 are operational every time. Therefore for achieving 100% WOD , one company needs to appoint 23 ?L-1 distributors across Punjab state. Besides logistical issues of handling 23 distributors , companies have always been prone to bad debts because of opening & shutting down of L-1's year on year basis. This policy provides a level playing platform to all kind of major , medium and small manufacturing companies.

?Following measures have been considered in this policy for ease of doing business for manufacturers :

?1. Manufacturers have been divided into two categories, those who are selling more than 30,000 cases per year and second which are selling below 30K cases in a year.

?2.?L-1 ( IMFL / IFL ) :- A liquor manufacturing company making IMFL & selling IFL/BIO can choose one L-1 lincensee to sell & distribute their products in the entire state. One L-1 ( IMFL/IFL ) can sell the products of ONLY ONE manufacturing company , however this condition shall not apply in the case of Vodka, Rum , Gin, Beer , Wine & RTD etc. Which means barring a Whisky brand, that L-1 can sell brands of other manufacturing companies which has Vodka, Rum , Gin, Beer , Wine & RTD etc ( minus whisky).

?There are several alcobev start -ups and small mfg. co's which are selling only Gin or Vodka or Rums or Brandy or RTD/Canned cocktails. For them this logistic channel is open to do business.

?3. The above mentioned L-1 ( IMFL/IFL ) can directly sell stocks to any licensed retail off in anywhere in Punjab. Earlier inter district supplies?was not permitted due to quota of IMFL & Beer. For those questioning ?removing of quota on IMFL & Beer this explanation can be helpful.

?4. In case a L-1 ( IMFL/IFL ) finds it difficult to supply stocks from one place to entire state, there is a provision of allowing opening of an open bonded warehouses throughout the state by paying an annual fee of Rs.1.0 lac.

?5. From a manufacturers point of view the sales proceed collections, EVC , C - Form etc will be more easier as they will be dealing with one distributor instead of 20 - 23 earlier.?

?6. L-1 ( OTHERS ) :- This license is provided ease to r those manufacturing companies of which the sales is below 30,000 cases in 2021 -22 . One L- 1 ( Other ) lincesee can accommodate as many companies as it wants to under this license. A?mfg. co. shall not be allowed to sell its products to more than one L-1 ( others) in Punjab . This wholesale channel is also available for medium and small size companies including Alcobev Start - ups having a benefit of appointing only one distributor in Punjab to safeguard their payments, EVC , C - Form and other hygiene factors.

?7. Similarly for Punjab Medium Liquor ( PML ) , there is a provision of a license L-1 ( PML ) for catering PML to entire Punjab state. Others T & C of L-1 PML remains as L-1 IMFL.

?Considering above changes towards ease of doing business and taking into account the following points, Punjab IMFL industry is expected to grow from 50 Lac cases to 70 Lac cases, i.e. 40% .

?* Abolishing quota on IMFL shall provide a level playing field to all large/major, medium and small manufacturing companies because under the quota system retailers endeavor is always to lift fast selling brands and therefore other brands sales suffer.

?* A lot of new brands from various start-up companies are expected to enter in Punjab market.

?* Investment on excise duty specially for new brands is almost nil therefore entry at wholesale level will become more easy for them.

?* Increased Off trade universe from 3680 IMFL L-2 outlets to proposed 6,378 outlets in 117 zones ?( IMFL + PML ) will further add into sales & WOD.

?* A provision of maximum 4% EDP increase is there in this policy. Now there can be several views and comments on this percentage which appears to me nominal, my opinion is at least there is a window open now to represent and address this issue appropriately in coming years.

* The margin of L-1 have been increased to 10% as against 5% of LY.

?HORECA

Supplies to HORECA will remain through retail off . The reduced MRP of 40% will also benefit to Bar & Clubs who may think on passing it to their valued customers & members for maintaining a price parity between Off & On premise.

?RETAIL TRADERS

The retailers in Punjab of habitual of draw of lottery as this system is prevailing since last so many years and therefore their economics & calculations are settled for this system. There have been many instances where one or two lottery of small time traders are dumped down under dozens of lottery of big retail cartels and therefore leaving absolutely no probability for a small trader to obtain business. E - tendering seems to a very transparent & open level playing field for all kind of retail business aspirants. Although the Punjab government is facing tough time to convince the traditional retailers and till the writing of this analysis I could not find a sufficient confidence level in retail fraternity for e-tendering . let's see if cards are placed right and state government is successful in 100% allotment through e - tender.

?Analysis By

Gopal Joshi

Strategist & Consultant

Beverages Alcohol Industry ?