Telangana liquor stalemate puts domestic industry on the rocks

The unprecedented halt of liquor supplies by Heineken-owned United Breweries to Telangana has ignited a chain reaction that threatens to disrupt not just the state’s alcohol market but also the broader industry dynamics in India.

Telangana, the country’s leading state in per capita alcohol expenditure, is grappling with financial disputes that may leave lasting consequences for companies, consumers, and government revenues.

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Supplies suspended

Telangana stands at the forefront of India’s alcohol consumption. With an average per capita expenditure of ₹1,623 on alcoholic beverages in 2022-23—a staggering rise from ₹745 in 2014-15—the state outpaces others like Andhra Pradesh and Punjab. It has also become a critical market for alcohol companies due to its cultural acceptance of alcohol consumption and its high contribution to revenue through excise duties.

In fiscal 2022-23, Telangana earned approximately ₹34,145 crore from liquor sales, a figure expected to reach ₹45,000 crore this year. This dependence highlights how integral alcohol is to the state’s economy. However, the government’s delay in paying suppliers has jeopardised this relationship, placing both the market and its stakeholders in a precarious position.

The dues owed by Telangana, estimated at ₹4000 crore ($466 million), have strained the finances of global alcohol giants like Diageo, Pernod Ricard, and Carlsberg. United Breweries, which controls 70 per cent of the beer market in Telangana, has suspended supplies, citing delayed payments and the state’s failure to approve price hikes since 2019-20. This bold move has already led to a 7 per cent drop in the company’s stock price, highlighting investor concerns.

Precarious situation

Analysts say that such financial strains ripple through the entire industry. Companies must allocate funds for advance excise duties while awaiting delayed payments, stifling cash flow and investment capacity. This precarious position could even force some players to reconsider their presence in the Telangana market, reducing competition and consumer choice.

The supply stoppage is most acutely felt by consumers, especially in Telangana, India’s largest beer consumer. Daily liquor sales in the state typically range between ₹70 crore and ₹100 crore, with festive peaks, such as the ₹926 crore in New Year sales from December 28-31, 2024. The suspension disrupts this steady supply, leading to potential shortages and price hikes.

If companies resort to passing their financial burdens onto consumers, it could make alcoholic beverages more expensive. Price increases would disproportionately affect middle-class and budget-conscious consumers, potentially driving them toward unregulated and unsafe alternatives, such as non-duty-paid liquor from neighbouring states.

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Double-edged sword

Telangana’s reliance on alcohol excise for revenue is a double-edged sword. While it substantially contributes to the state’s budget, the payment delays have triggered a supply stoppage that could undermine revenue projections. If the stalemate persists, the state risks losing significant income, further complicating its fiscal health.

According to Nuvama Institutional Equities, Telangana liquor sales were already impacted by poll curbs, which led to lower revenues for the state. “The top-line growth was affected by election restrictions, particularly in Telangana, where UBBL was not approved for three shifts. UBBL’s volumes grew 5 per cent YoY; if there were no election-related impact, volume growth would have been 8–9 per cent,” the report said.

The government’s framing of the supply suspension as a “tactic” by companies underscores a lack of urgency in resolving the issue. However, failure to address these payment disputes could deter future investments and weaken the trust between private players and the state.

This situation is not isolated to Telangana. India’s alcohol market, valued at $45 billion annually and growing, faces challenges that threaten its potential. Delayed payments, fragmented state regulations, and increasing scrutiny—such as the antitrust investigations into alleged collusion by major players like Anheuser-Busch InBev and Pernod Ricard—create an unstable environment.

High-risk proposition

For global companies, India’s alcohol market remains a high-risk, high-reward proposition. Persistent regulatory hurdles and financial instability may push these firms to re-evaluate their strategies, focusing on premium products with higher margins while limiting mass-market offerings in volatile regions.

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The current crisis presents an opportunity for reform. Industry associations have urged the Telangana government to streamline payment processes, reduce advanced excise duties, and create a more predictable regulatory environment. These measures could stabilise the industry and restore confidence among stakeholders.

For Telangana, resolving the payment disputes swiftly is essential to resume supplies and safeguard its position as a leading state in the alcohol market. Long-term solutions, such as diversifying revenue sources and improving fiscal management, could reduce the state’s dependency on alcohol excise, making its economy more resilient.

The liquor supply stoppage in Telangana is a microcosm of the challenges facing India’s alcohol industry: growing demand, regulatory complexities, and financial bottlenecks.