Indian Thriving Non-Alcoholic Beverage Revolution
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Non-alcoholic beverages: Spirited pursuit of a $50 bn global
opportunity
Virat Bahri & Asjad Husain | March 13, 2024
India’s non-alcoholic beverage industry is flourishing, propelled by a youthful,
and increasingly prosperous demographic and backed by the availability of ample
raw materials. The domestic market is poised to reach a size of US$ 21.5 billion
by 2028, growing at a CAGR of 6.72% over the next 4 years. Increasing health
consciousness and growing disposable incomes are steering demand towards a
varied range of healthier alternatives.
However, India’s share in global trade is extremely low, with a global rank of 57 in
a market led by Austria, Germany and the US. The industry faces various
challenges including elevated taxes, infrastructure constraints and mismatch of
the taxation regime with global demand trends. This article dives deep into these
issues and future prospects.
Image Credit: Shutterstock
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The non-alcoholic beverage market is experiencing rapid expansion across the globe, as
well as the rise of newer players and innovative products. Companies in this sector are
offering a wide array of products ranging from carbonated soft drinks to juice-based
drinks, sports drinks, organic drinks, pulp-based drinks, and even wine. The global non-
alcoholic beverage market is forecasted to maintain a steady growth trajectory with a
CAGR of 7.3% to reach US$ 2.2 trillion in 2026. This presents a significant opportunity
for India to capitalize on the rising global demand for non-alcoholic beverages by
leveraging its abundant resources of raw materials.
Global imports of non-alcoholic beverages reached a size of US$ 48.5 billion in 2022,
growing at a 5-year CAGR of around 5%. The top markets in terms of share were the
US (17%), Germany (7%), UK (7%), Netherlands (5%) and France (4%). In terms of 5-
year CAGR, the fastest growing markets (among the top 20) were Turkey (38%), Austria
(14%), China & Poland (13%) and the UK (7%).
With a population skewed towards younger consumers, particularly those aged between
18 and 40, the market presents a significant opportunity for manufacturers to introduce a
diverse range of products. The industry caters not only to basic hydration needs but also
plays a crucial role in maintaining the body’s pH balance, offering nourishment to
invalids, infants, and convalescents. Moreover, per capita sales volume in India (21.36
litres in
2018) is much lower than other developing countries like Philippines (111.89 litres) and
Vietnam (69.75 litres).
Furthermore, these drinks serve as instant energy boosters post-exertion, making them
ideal for replenishment after sports, games, or other physically demanding activities.
Their practical significance extends to preventing dehydration and maintaining blood
volume in various scenarios, such as bleeding, heatstroke, vomiting, excess sweating,
or diarrhea. It becomes evident that the rising trend in non-alcoholic beverages aligns
seamlessly with the growing demand for healthier and more mindful choices, setting the
stage for a dynamic industry poised for continued expansion.
Trade Analysis
India stands out as the largest global producer of banana, mango, lime, lemon, papaya,
milk, and sugar, which are key raw materials for the non-alcoholic beverages. The food
and beverage industry in India is one of the fastest-growing sectors, fueled by a robust
raw material production base. The domestic non-alcoholic beverage market is poised to
reach a size of US$ 21.5 billion by 2028, growing at a CAGR of 6.72% over the next 4
years.
This growth is driven by several factors, including the increasing affluence of the
expanding working population, a rise in disposable income, growing urbanization leading
to shifting lifestyles and time constraints for home-cooked meals, a surge in tourism and
international travel, and a heightened consumption of rapidly growing food and beverage
segments during special occasions and celebrations.
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Key Growth Drivers for the Non-Alcoholic Beverage Sector
Demographics Large young and middle-class population eager to explore
diverse products.
Rising urbanization contributes to increased demand driven
by aspirations for an improved standard of living.
Rising Health Growing global awareness and demand for healthy foods
Awareness create opportunities for developing new products.
Surge in demand for various options, including fruit drinks,
dairy substitutes (e.g., almond milk), organic drinks, and zero-
sugar beverages.
Increasing Continued growth in disposable incomes in India, especially
Disposable among the middle class.
Incomes Higher spending on food and beverages, with rising incomes
of working women contributing to overall market growth.
Change in Shift in consumption patterns due to evolving urban lifestyles.
Consumer Increased demand for convenient products, driven by
Preferences changes in food habits, rising instances of dining out, and the
growth of online Direct-to-Consumer (D2C) platforms.
Improving Growth in logistics and infrastructure enhances the reach of
Infrastructure the food and beverage sector.
Expansion of cold chain infrastructure, transportation, and
physical infrastructure like roads, resulting in greater access
to rural markets.
Advances in packaging solutions contribute to improved shelf-
life of non-alcoholic beverages.
Source: ICRIER
However, India’s position in global exports of non-alcoholic beverages is not reflective of
its potential. Imports in this category were estimated at US$ 273.6 million in 2023 (5-
year CAGR of 11.5%), while imports were at just US$ 81.8 million (5-year CAGR of
21.7%), leading to a trade deficit of US$ 191.8 million. For analysing the trade in this
category, we have considered three 4-digit HS Codes:
HS 2201: Waters, incl. natural or artificial mineral waters and aerated waters, not
containing added sugar or other sweetening matter…
HS 2202: Waters, incl. mineral waters and aerated waters, containing added sugar or
other sweetening …
HS 2009: Fruit juices, incl. grape must, and vegetable juices, unfermented, not
containing added spirit, …
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Source: DGCIS, ITC Trade Map, figures in US$ million;
India’s exports and imports are dominated by one category – HS 2202. Exports for this
category reached US$ 60.3 million in 2023 and imports were recorded at US$ 240
million. Even globally, this is the highest contributor to trade in non-alcoholic beverages
with imports of US$ 26.9 billion in 2022, followed by HS 2009 (US$ 17 billion) and HS
2201 (US$ 4.5 billion).
Among global exporters, India ranks at 67, with a global market share of just 0.12%. The
top position was taken by Austria in 2022 (US$ 3.9 billion), which is closely followed by
Netherlands (US$ 3.8 billion). Germany (US$ 3.2 billion), US (US$ 2.3 billion) and
Thailand (US$ 2.29 billion) took up ranks 3, 4 and 5 respectively. Notably we cannot say
that there is a dominant player yet in this market, even though the top ten have taken
54% of the market collectively.
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Source ITC Trade Map, figures for 2022
India’s exports on the other hand were dominated by UAE in 2022 (US$ 16.12 million)
followed by the US (US$ 8.3 million), Nepal (US$ 7 million) and Netherlands (US$ 4.3
million). It is clear that there is a long way to go for India to make a mark in this segment
internationally. However, the growth in the domestic market is a positive sign, as players
are enthused to expand capacities and build strong product portfolios in this segment.
This could reflect in export performance in the coming year. However, the industry also
faces some critical challenges as surmised in a report by ICRIER:
High GST and Sin Tax Impact: Elevated GST rates and the imposition of additional “sin
tax” based on the 2015 Subramanian Committee Report pose financial challenges for
the sector.
GST Rates Misalignment with FSSAI Regulation: Lack of alignment between GST
rates and regulations set by the Food Safety and Standards Authority of India (FSSAI)
can lead to compliance issues and operational complexities.
Unfair Competition and Counterfeit Products: The unorganized sector poses a threat
with unfair competition, and the proliferation of counterfeit products undermines the
authenticity and quality of non-alcoholic beverages.
Negative Industry Perception: The industry faces negative perceptions, potentially
stemming from health concerns, marketing practices, or misconceptions, impacting
consumer trust and brand reputation.
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Infrastructure Challenges: Issues related to inadequate infrastructure, logistics, and
distribution networks can hinder the efficient production and distribution of non-alcoholic
beverages, affecting market reach and competitiveness.
Logistical issues: While India is rapidly evolving its food processing sector, level of
processing is still low. Players are constrained by marketing challenges, lack of storage
and transportation infrastructure (leading to wastages) and fragmented supply chains.
There is need to encourage more private sector investment in this sector to address
these issues.
Besides this, the sector has high scope for innovation, given India’s large and extremely
diverse agricultural resource base. Companies should be encouraged to invest in R&D
and new product innovation in a market where tastes and preferences evolve quite
rapidly.
Dr Arpita Mukherjee, Professor at ICRIER, comments, “While India is one of the largest
producers of milk and many fruits and vegetables used in beverages, our exports are
low as the cost of processing is high. For fruits-based carbonated beverages,
irrespective of their sugar content, the GST of 28% plus the compensation cess of 12%
amounts to 40% tax, which makes it difficult for the market for such drinks to grow. The
high taxes act as an disincentive for the market for carbonated fruit based beverages to
grow unlike countries like Thailand.”
She further adds that in India, taxes are not linked to sugar content and sugar is
subsidized. Hence, price of high sugar drinks are low. In other countries there is a shift
towards lowering the sugar content in the drink through a layered sugar-based tax. High
sugar products face high tax in importing countries. Further, consumers are shifting
towards healthier products. So there is a mismatch between global demand and our
production.
Moreover, organic drinks and low sugar drinks has huge export potential, which is still
unexplored. Going forward, Dr Mukherjee suggests that “schemes like the PLI and GST
may be linked to sugar content in beverages with low sugar drinks facing low taxes. This
may help to encourage production of beverages that are more liked by consumers in
both the domestic and export markets.
Government Initiatives
The Government of India has undertaken a number of initiatives to support the food
processing sector, which can also help catalyse the growth of the non-alcoholic
beverage industry.
Easing FDI Regulations: The Indian government permits 100% FDI in the food
processing industry through the automatic route to encourage investments in the sector.
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Milk and Milk Product Order (MMPO), 1992: Regulates milk and milk product
production in India, with relaxed regulations for units handling less than 10,000 liters of
liquid milk per day or milk solids up to 500 tons per annum.
Income Tax Exemptions: 100% Income Tax exemption on profits and gains for new
Dairy Processing Units for the initial 5 assessment years. Substantially reduced
corporate tax rates, making India one of the countries with the lowest corporate tax.
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Conclusion
In conclusion, the global non-alcoholic beverage market is on a robust growth
trajectory, projected to reach US$ 2.2 trillion by 2026. India, with its vast
resources and burgeoning market, stands at the precipice of a significant
opportunity to capitalize on this trend. With a population skewed towards younger
consumers and rising health awareness driving demand for diverse and healthier
beverage options, the stage is set for exponential growth in the sector.
However, despite being a major producer of key raw materials, India’s global
exports in this segment remain modest, indicating untapped potential.
Overcoming challenges such as high taxation, infrastructure limitations, and
market perception issues will be crucial for India to leverage its strengths and
emerge as a prominent player in the international non-alcoholic beverage market.
Government initiatives supporting the food processing sector provide a favorable
environment for industry growth, signaling promising prospects for the future.
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