Diageo-USL official says impulsive decisions by State governments impact businesses
In 2016, the Bihar Government did what all liquor companies dread: impose prohibition. Nearly a year later, more States, including the most lucrative market for liquor majors, Goa, are planning to do the same. In an interview with BusinessLine, Abanti Sankaranarayanan, Chief Strategy and Corporate Affairs Officer, Diageo-USL, says prohibition is anything but ease of doing business. Excerpts:
It has been over a year since Bihar implemented prohibition. How has the impact been on liquor companies? How much have companies like USL lost in terms of revenues?
Any State that decides to implement prohibition will naturally see some impact on the overall business of the industry. As a result of prohibition in Bihar, the industry has lost crores in capex (capital expenditure) for the infrastructure invested, which is ironical given how the government has actively courted investment in the past. Right now, the industry is locked in litigation with the government, to recover dues on goods sold to the Bihar State Beverage Corporation and the cost of raw materials stuck in our plants. Decisions made on impulse with no concern for businesses that operate in the State shake investor confidence not just in one State, but in the country as a whole. The Bihar government’s decision has resulted in an overall decline of 5 per cent in USL’s popular segment sale for the nine months of the financial year.
Does USL have an alternate plan to overcome the loss in revenues and market share?
While a difficult and unpredictable regulatory environment has restricted the industry growth to a mediocre mid-single digit, India’s strong fundamentals, combined with our focus on innovation and premiumisation is moving this trend positively.
Has prohibition led to a positive impact as far as social issues are concerned?
It’s hard to tell because there are contradictory reports of the impact in Bihar. What is proven though, is that prohibition has not been effective in any State in India, and so all States that have tried it, except Gujarat, have rolled it back – usually in two years. Prohibition gives rise to crime, smuggling, drugs and substance abuse. These are huge social costs to pay. And then the State loses revenue – which could have funded social spends and development projects.
There are other States like Goa, Madhya Pradesh, Chhattisgarh which are planning complete / phased prohibition. How concerned are companies like USL because of the changing dynamics of the industry?
You have to see the full picture. Since Bihar, eight or nine States have had elections. Not one of them made prohibition an electoral promise. In Kerala, the party that banned liquor, lost the election. So, there’s a learning here – Prohibition doesn’t get you the votes. We respect people’s choice, whether to drink or not to drink and want those who choose to drink, to drink responsibly, better and in moderation.
Has USL engaged in talks with the Bihar Government on the issue of prohibition and if yes, what has been the outcome?
We continue to engage but in a different context – to recover our losses after the overnight decision to ban IMFL left us stranded. Together with the industry, we have appealed for compensation towards losses it has incurred as a result of unused stocks lying with the corporation and at the plants, packaging material, raw materials and other such items. We are battling it out in the Court. It’s unfortunate. India is an attractive market with potential for growth.
However, arbitrary regulations, policies and taxes adds further complexity to an already regulated industry. This is anything but Ease of Doing Business!