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ITO ProjectITC HS Code 2208

Undenatured ethyl alcohol of an alcoholicstrength by volume of less than 80% vol.

Varun Chadha46 BIIFT MBA (IB) 2012-1426/11/2012

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Introducton ! A"coho" ndu#tr$

Registering a robust growth of about 30 per cent on YoY basis, alcohol consumption in Indiawill cross 19,000 million litres by 2015 from the current leel of !,"00 million litres, ape#

industry body $%%&'($) said today*

India+s alcoholic beerage maret comprising beer, wine and spirits will reach oer Rs 1*-lah crore mar in 2015 from current si.e of about Rs 50,"00 crore, says an industry specificanalysis of /he $ssociated 'hambers of 'ommerce and Industry of India $%%&'($)*

%i.able middle class population with rising spending power and a sound economy arecertain significant reasons behind increase in consumption of alcohol in India, according toan $%%&'($) study on atest /rends in 4omestic iuor )aret*+

India is one of the fastest growing alcohol marets in the world and largest consumer ofwhisey which accounts for almost 60 per cent of the entire liuor maret* &wing to India+saffinity for hard liuor, Indian whisey maret which currently stands around Rs -0,500 croreis e#pected to cross Rs 5-,000 crore mar within ne#t two years*

Indian liuor maret which is diided into arious categories lie 7 I)8 Indian made foreignliuor, imported liuor, domestic liuor and countrymade liuor, is brimming with growth* &flate, Indian consumers hae deeloped fondness for imported liuor and the maret iscrowded with arious foreign brands*

$wareness about health benefits associated with moderate drining is another significantfactor behind this upsurge as now more and more Indians are adopting a healthy lifestyle,highlights the study*

:rbanisation together with eerchanging social norms, increased alcohol aailability, highintensity mareting and rela#ation of oerseas trade rules hae eually contributed toincreased alcohol consumption*India rans as one of largest alcoholic beerage maret across the globe considering thatalmost "0 per cent of alcohol in southeast $sia is produced in India* ;erela and $nnual Report, ?oernment ofIndia, )inistry of 8ood

1* Industrial $lcohol2*

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In India, ma=ority of distilleries manufacture alcohol from %ugar 'ane )olasses compared tointernational trend of grain based rice, wheat, millet, @arley, corn and oat alcohol* In India,since alcohol is largely produced from sugarcane molasses, the industry is cyclical in nature,as sugarcane production itself is affected eery 3- years due to monsoon and other factors,resulting in low aailability of molasses*

$lcohol industry is the second largest source of reenue of the %tate A#cheuer 7 Rs*25,000 cores* /he Industry turnoer is BRs*5-,000 core %ource> Auro monitor International2009* It is the only Industry where inputs are decontrolled free maret price and output iscontrolled selling price is determined by %tate A#cise in most %tates*

/he Indian spirits maret has grown rapidly owing to rapid economic growth, risingdisposable incomes, faourable demographics and greater social acceptability of alcoholconsumption in India* In particular, according to Auro monitor International 2009, the salesolume of spirits products is e#pected to reach 2*2 billion litres by 2013* India hastraditionally been among the world+s lowest per capita consumers of foreign spirits such aswhisy, rum, brandy, oda and gin* Indian )ade 8oreign iuor I)8 is an industry term

of art in India used to describe these foreign spirits that are now made in india*

/he liuor industry in India is constrained by a multitude of factors>

Ca%act$ &e#trcton#

/he industry is not allowed to e#pand without the prior approal of the 'entral goernment,as it among the few industries still under the licensing policy* In a liberali.ed scenario, whenmolasses hae been decontrolled and for the brewery sector too, there is no shortage ofdomestically aailable hops, restrictions on new capacities mae little sense* %tategoernments hae a part to play as well, since companies hae to get their approal too

before commissioning a unit* (oweer, the situation has changed with the %upreme 'ourtruling designating alcohol as a %tate sub=ect* It is e#pected that companies will no longerface problems on fresh capacity creation*

H'h ut$ Structure

/he manufacture of I)8 is sub=ect to goernment licensing, while leies on sales are a%tate sub=ect* /he %tates earn a significant portion of the reenues from liuor* In some%tates, the duty is as high as 200C* /he duty structure aries so much with each %tate thatfor a company operating at the national leel, it is lie dealing with 26 countries* %uch dutiesincluding special leies on inter%tate sales hae resulted in a distributed manufacturingbase and uniue maret characteristics for each %tate* )aret sources feel that since %tates

are strapped for funds, aderse changes in policies for the alcohol industry are unliely tohappen*

*&+ ,THA*+ .&*CTI* A C*SM.TI* .ATT,&

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Dorld Athanol

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/he aboe chart shows ethanol production in India in 2011 which is 2*9 bn litres* Athanol is

primarily produced using sugarcane molasses, a byproduct of sugar manufacturing in India*

/he main feedstoc for producing ethanol in the country is molasses, a byproduct of sugar

manufacture*

$s the aboe chart depicts, there are three main uses of ethanol in India namely potable

sector i*e* the alcohol industry in India 56C share, industrial sector lie automotie sector

and the fuel ethanol sector*

,.,CT, ,THA*+ ,MA B7 201

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In 9anuar$ 200:; the 'oern

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IE4I$ F% I)

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I

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If we loo at India+s A#ports, top 25 countries contribute 95*1 C of e#ports, :*$*A and

$ngola garnering around !- C of share* 'learly, India needs to diersify its e#ports as it

can+t be dependent on ery few countries for e#ports* /herefore, it should focus on $frican

)arets where there is a huge potential* @etween 2009 and 2011, India+s e#ports to $frica

hae trebled in whisy and uadrupled in wine segment* $nalysing India+s e#ports to $frica,

we find that barring ten countries, all countries+ e#port olumes is abysmally low i*e* lessthan 50 tonnes* India+s focus should be on relatiely lesser e#plored countries lie )auritius,

Agypt, :ganda, :nited Republic of /an.ania, %udan, 'ameroon, Auatorial ?uinea,

@urundi, ?uinea, %eychelles, ?ambia, Athiopia, ?abon, and )o.ambiue* Inda #hou"d

a"#o 3ocu# on countre# ">e Mada'a#car and S5aD"and 5here Inda doe#nt e@%ort#

current"$ ut doe#

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to increase demand of ethanol considerably and as a result imports would be higher* In

order to produce liuor e#ports, ?ot* can reduce e#penditure on ethanol for companies by

remoing import duty of "*5 C for companies e#porting liuor*