So Much for Getting High on FTAs: The Impact on India’s Alcobev Industry

---

As India enters the next round of Free Trade Agreement (FTA) discussions with Britain and the European Union in 2025, the conversation around its impact on the alcohol beverage (alcobev) sector is crucial. Previous industry-led FTA discussions primarily focused on imported finished products and the challenges faced by domestic players due to high import duties. With wines taxed at 100% and spirits at 100% plus an additional 50% Agriculture Infrastructure and Development Cess (AIDC), these tariffs act as significant barriers to international trade.

A Shift Towards Bulk Alcohol

The upcoming FTA discussions should emphasize bulk alcohol and its economic advantages. Over 90% of imported alcohol arrives in bulk, supporting various bottled-in-India (BII) and Indian-made foreign liquor (IMFL) brands. As the domestic industry shifts towards premium products, demand for bulk scotch—an essential input material—is set to rise. This presents opportunities for small and medium enterprises (SMEs), micro, small, and medium enterprises (MSMEs), and Indian exports.

Changing Global Consumer Preferences

In markets like the EU, US, and Britain, alcohol consumption patterns are evolving, with a notable decline in alcohol intake and an increasing demand for low- or no-alcohol alternatives, including hard seltzers, ready-to-drink (RTD) cocktails, and wines. In contrast, the Indian market for these products is still in its early stages and requires significant investment and patience to scale up.

India remains predominantly a whisky market, accounting for 66% of total spirits consumed. Rum and brandy follow, while white spirits such as vodka, gin, and RTDs are growing in popularity on a smaller scale. Notably, the success of Indian single malts and innovations in gin are emerging as potential game-changers for both domestic and international markets.

Challenges for International Players

The ‘Make in India’ initiative, while beneficial to local brands, poses challenges for international players looking to capitalize on FTAs. Indian alcobev companies have built a strong brand presence across all price segments, integrated their supply chains, improved logistics, and embraced digital warehousing. Their stronghold in the market, combined with strategic collaborations, mergers, and tie-ups, creates a tough competitive landscape for foreign entrants.

Regulatory Complexities

The Indian alcohol market faces significant regulatory hurdles across production, supply, transportation, and retail. Each state has its own excise policies, with little harmonization, effectively nullifying any advantages FTAs might offer. The sheer size of India’s retail market—approximately 88,234 liquor shops for a population of 1.3 billion—further complicates matters. Despite the country’s digital advancements, alcohol sales remain largely a physical, offline business.

Retail Dominance and Advertising Restrictions

With 75-80% of all alcohol sales occurring through retail channels, bargaining power lies with traders rather than manufacturers. Building market share is challenging for new international brands, as direct advertising of alcohol is prohibited. Brand awareness is limited to age-gated community networks, making it difficult for global players to engage consumers effectively. This limitation reduces their ability to fully benefit from FTAs.

Final Thoughts

While FTAs present theoretical opportunities for global alcobev brands, the on-ground realities of high tariffs, regulatory fragmentation, and strong domestic competition create a challenging landscape. For India’s alcobev sector, strategic policy interventions and streamlined regulations will be key to ensuring a balanced trade environment that benefits both domestic and international players.