The Economic Reforms That Got India Tipsy
WHY YOU SHOULD CARE
Because this is when India went from bottoming out to “bottoms up!”
Not long ago, liquor stores in Mumbai and Delhi were unkempt, dimly lit shops filled with Indian-manufactured spirits like whiskey, brandy, gin and rum. Collectively known as India-Made Foreign Liquor, or IMFL, this offering meant that anyone who came in looking for Western fare like Glenlivet, Johnnie Walker Black and French reds left empty-handed … and thirsty.
But today, Indian shop owners can explain the subtle differences between malbec and merlot, pilsner and pale ale or single malts versus blends. The days of slim pickings are long gone, with liquor stores in urban India now stocking Scotch, reds, whites and rosés, as well as international beers, leaving consumers happily spoiled for choice.
Buyers tended to be middle-aged men who drank spirits … to get high.
In a recent interview, Raghuram Rajan, governor of India’s central bank, described the country’s economy, compared to other global economies, as a “one-eyed king” in “the land of the blind,” explaining that medium-run growth was within sight and “investment is starting to pick up strongly.” But back in 1991, with those IMFL-filled liquor stores, India’s economy was on the verge of a breakdown. Burdened by $72 billion in debt, it was the world’s third-largest debtor after Brazil and Mexico. The government was close to default, and, in January of that year, foreign reserves had dropped to $1.2 billion — by June, that number had shrunk by half.
The government was forced to pledge India’s gold reserves to the Bank of England and the Union Bank of Switzerland to secure an emergency loan of $2.2 billion. For P.V. Narasimha Rao, the newly elected prime minister, the path forward was clear: The time for “soft options” had passed, and extreme measures were needed to rescue India from a financial crisis.
Enter Manmohan Singh, Rao’s mild-mannered, soft-spoken finance minister, who set about dismantling the centrally planned, socialist economy. On July 24, 1991, in his annual budget speech, Singh announced a new industrial policy that allowed foreign investment and scrapped industrial licensing. This, in effect, opened the Indian economy to a world of investors. “India is going to join the global economy, but at its own pace and on its own terms,” reported the Times of India.
One affected sector was alcohol. Before 1991, enjoying a drink with friends was unheard of because drinking was a social taboo. Until then, the focus had been on producing and distributing liquor, rather than consuming and enjoying it. Manufacturers would lure retailers with high margins and holiday trips to push their respective brands, and buyers tended to be middle-aged men who drank spirits — popular brands included McDowell’s No.1 (whiskey), Hercules Choice (rum) and Blue Riband (gin) — to get high.
But after 1991, the customer became king … and queen. Manufacturers improved their packaging, used better ingredients and began to build brand loyalty. And for women, the picture began to change in the early 2000s, when Bacardi introduced its orange-, lime- and cranberry-flavored, low-alcohol Breezers. “More and more women have joined the working milieu, so there’s a lot more mixed drinking,” says Rajesh Srivastava, who worked at United Breweries, the Indian alcohol conglomerate.
The economic reforms also uncorked an Indian wine movement. In the late ’90s, the government tweaked the country’s excise laws, making it easier for businesses to get licenses to import wine and spirits. Among those who recognized a good business opportunity was Vishal Kadakia, who returned to India from the U.S. to set up the Wine Park, a company that imports wines, in 2006. “We wanted to bring in boutique, family-driven wines that had a great story, unlike whiskeys and vodkas that are run by big corporations,” he says.
Tourists, business travelers and those over 30 tend to purchase premium wines, while younger buyers are more likely to stick with the cheaper Indian fare. Almost 70 percent of wines sold in India are red, with the remaining 30 percent divided between white and sparkling wines. Kadakia says the number of premium wine cases he imports shoots up by 25 percent annually thanks to a vibrant hospitality sector, and India produced a record 44,909,246 gallons of its own wine in 2014. Indeed, wine has seen a remarkable boost in popularity, but whiskey still dominates alcohol sales, with Indians consuming 396,258,055 gallons of it in 2014.
“No power on Earth can stop an idea whose time has come,” said Singh in his 1991 speech, quoting Victor Hugo. With expected growth of 11.1 percent every year until 2020 for IMFL sales, a flourishing beer market and an urban middle class with high disposable income, India is raising a glass to its alcohol-soaked success.