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India's carbonated soft drinks (CSD) segment holds tremendous potential, but it remains constrained due to high taxes imposed under the Goods and Services Tax (GST) regime. According to a report by economic think tank ICRIER, despite government initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’, the carbonated beverages industry in India is unable to scale as expected. The report titled “Carbonated Beverages Industry in India: Tax Policy to Promote Growth, Innovation and Investment” highlights the heavy tax burden on the sector, which has stifled growth, innovation, and investment.
The Heavy Tax Burden on Carbonated Soft Drinks
One of the key barriers to the growth of the CSD segment is the high taxation under the GST regime. Since its implementation in 2017, carbonated soft drinks have been placed in the highest GST slab of 28%, accompanied by a 12% compensation cess, totaling a staggering 40% tax rate. This makes India one of the countries with the highest tax rates on sugar-sweetened beverages (SSBs). According to cross-country data compiled by the World Bank, over 90% of nations that tax SSBs have lower rates than India.
Shifting Consumer Preferences and Product Innovation
The CSD market globally is evolving, with a noticeable shift toward healthier alternatives such as low-sugar, fruit-based, and zero-calorie beverages. In response to consumer demand, manufacturers around the world are reformulating their products, supported by government policies offering fiscal and non-fiscal incentives.In India, the CSD industry is also adapting by introducing healthier options such as zero-sugar and low-sugar beverages. However, despite the market's potential, scaling up has proven difficult due to the high tax regime. The ICRIER report notes that the uniform 40% tax rate—irrespective of sugar content—hinders innovation and discourages firms from investing in product reformulation and expansion.
India has several advantages that could support the growth of its CSD sector. The country is one of the largest global producers of fruits such as mango, banana, guava, papaya, pomegranate, and lime, which can be utilized in fruit-based beverages. Additionally, India is a major sugar producer, a key ingredient in many CSDs. However, the processing of carbonated beverages in India remains well below its potential, and the variety of available products is limited compared to other developing nations like Thailand and the Philippines.In 2022, India’s CSD market generated revenue of USD 18.25 billion, growing at a compound annual growth rate (CAGR) of 19.8% from 2017 to 2022. While these figures indicate some progress, they fall short of the sector's potential. India lags behind several other developing countries in revenue generation, innovation, and product variety in the CSD segment.
Challenges and Missed Opportunities
One of the primary reasons for the sector's underperformance, according to the ICRIER report, is the historical treatment of CSDs as a significant revenue source for the states. Previously, CSDs were taxed heavily under state excise laws. Post-2017, the GST Council has continued this trend by recommending high taxes and compensation cess on carbonated beverages.This high tax rate discourages innovation, limits the introduction of low-sugar varieties, and hampers investment in new product lines. As a result, the potential to generate jobs and attract investment in this sector remains largely unexplored, particularly in regions with high unemployment rates.
Conclusion
The ICRIER report highlights the need for policy reforms that can unlock the potential of India’s carbonated soft drinks segment. While the government’s initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’ aim to promote self-reliance and boost domestic industries, the high tax regime imposed on CSDs is stifling innovation and growth. Lowering taxes, providing incentives for product reformulation, and encouraging healthier alternatives could help the sector expand, attract investment, and create jobs in India’s growing economy.
Hashtags #CarbonatedSoftDrinks #GST #MakeInIndia #TaxPolicy #BeverageIndustry #FoodIndustry #Innovation #ICRIERReport
Avensha Singh
A California-based travel writer, lover of food, oceans, and nature.
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