A recent study by economic think tank ICRIER reveals that India's carbonated soft drinks (CSD) sector is struggling to expand. High taxes under the Goods and Services Tax (GST) regime are hampering growth, despite government initiatives like 'Make in India' and 'Aatmanirbhar Bharat'.

According to World Bank data, India's tax rate on sugar-sweetened beverages (SSBs) is among the world's highest. At 40 per cent, it surpasses rates in over 90 per cent of countries taxing SSBs. This high taxation is proving to be a significant barrier for the industry.

Consumer preferences are shifting globally, with health-conscious buyers now favouring low-sugar and no-added-sugar drinks. The CSD market is adapting to this trend, offering more fruit-based and zero-sugar options to cater to changing tastes.

Producers worldwide are reformulating products to meet this new demand. Many governments support these changes with both fiscal and non-fiscal incentives. Indian companies are also revamping their portfolios but face unique challenges in the domestic market.

The ICRIER report states, "The CSD segment is unable to reach its potential in terms of scale expansion due to barriers such as the high tax brackets and compensation cess under the GST regime, implemented since 2017." This observation highlights the impact of tax policies on industry growth.

Current GST Structure

Under the current GST structure, carbonated drinks face a 28 per cent tax plus a 12 per cent cess, regardless of their sugar or fruit content. This hefty 40 per cent tax discourages innovation, particularly in developing low-sugar varieties.

Despite these challenges, India's CSD market shows potential. In 2022, it generated $18.25 billion in revenue, growing at a 19.8% CAGR between 2017 and 2022. However, compared to its population size, the market remains relatively small.

India's position as a major fruit producer contrasts with its lagging CSD manufacturing sector. The country offers fewer CSD varieties compared to other developing nations like Thailand or the Philippines. This gap represents untapped potential for the industry.

The report further notes, "While the Indian consumer wants to experiment with different products such as low-sugar CSDs or fruit-based CSDs, and startups are trying to come up with new products, investment, product varieties and innovation is much lower in CSDs in India," as per the report.