Carbonated soft drinks industry struggles under high GST

India’s carbonated soft drinks industry, generating US$ 18.25 billion in revenue in 2022, faces major hurdles due to a 40% GST and limited innovation, according to a PTI report based on ICRIER research. The high tax rate is viewed as a barrier to investment and job creation, particularly in smaller cities, contributing to the sector’s underdevelopment.

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India’s carbonated soft drinks (CSD) segment has hit a growth barrier, mainly due to the heavy tax burden under the Goods and Services Tax (GST), according to a report from PTI, based on research by ICRIER. Despite initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’, the steep taxation has stifled the CSD industry’s potential to scale up. The report highlights that India imposes a 40% tax on sugar-sweetened beverages (SSBs), one of the highest globally. “This tax rate is significantly higher than that of over 90% of countries that tax SSBs,” the report notes.

As consumers worldwide lean toward healthier options, manufacturers are reformulating products to offer low-sugar, fruit-flavored, and zero-calorie drinks. However, Indian companies face difficulties innovating. “The high tax of 40%, regardless of sugar content, is hindering firms from scaling their low-sugar or fruit-based CSD offerings,” the report points out.

India, a major producer of fruits like mangoes and bananas, has untapped potential for integrating these ingredients into the CSD industry. However, the country lags behind developing nations like Thailand and the Philippines in product variety and revenue. Despite generating US$ 18.25 billion in revenue in 2022 and experiencing a compound annual growth rate (CAGR) of 19.8% from 2017 to 2022, the sector remains underdeveloped.

The report also emphasizes that India’s CSD sector could be a major driver of investment and job creation, especially in Tier 2 and 3 cities. Yet, the high tax rates, which are a lucrative revenue source for the government, are limiting the sector’s growth and preventing it from realizing its full potential on a global scale.