Consumers, globally and in India, are shifting towards low-sugar or no-sugar-added beverages amid increased health consciousness.

“The carbonated drinks market is also changing from traditional high-sugar carbonated drinks to sugar and fruit-based carbonated drinks and/or flavored drinks to zero-sugar carbonated water, responding to changes in consumer choice for healthier options and government policies such as tiered soft drinks -sugar-based taxes,” the report said.

Manufacturers around the world are reformulating their products to meet consumer demand, and this is supported by government policies and both fiscal and non-fiscal incentives. In India too, manufacturers are re-examining their product portfolio and coming up with products such as low-calorie products with low/no sugar content.

“However, despite government initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’, the CSD segment has not been able to realize its potential in terms of scale due to barriers such as high tax slabs and compensation tax under the GST regime, implemented since 2017 ,” the report said.

Currently, fizzy or fizzy drinks are placed in the highest GST slab of 28 percent with a compensation rate of 12 percent, irrespective of their sugar or fruit content.

“The high tax of 40 percent, regardless of sugar content, makes it difficult for innovative companies to invent and scale up low-sugar varieties, and for existing companies to invest in product reformulation,” the ICRIER report said .

Citing comparative data on SSB taxes collected by the World Bank, the report states that India has one of the highest tax rates on CSDs, with a total tax rate of 40 percent from 2023. Over 90 percent of countries that tax SSBs have a lower tax rate than India.

The Indian market for CSDs is relatively small. It generated revenues worth $18.25 billion in 2022, growing at a CAGR of 19.8 percent from 2017 to 2022.

The report points out that India is one of the world’s largest producers of fruits such as mango, banana, guava, papaya, sapota, pomegranate, lime and sugar, which in some cases are used in the low-carb sugar category. has the potential to be used in greater capacity if the right policies promote its use in CSDs.”

However, India is not among the top global CSD producers, and the processing of CSD products in the country is far below its potential. There are also far fewer varieties than are available in other developing countries such as Thailand or the Philippines, it added.

“While Indian consumers want 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 in CSDs are much lower in India,” he says. said.

Thus, India lags behind several other developing countries in terms of revenue generated from the CSD market. Consequently, the sector’s potential to attract investment and create jobs, especially in Tier 2 and 3 cities, remains unexplored, the report said.

“This is mainly due to the treatment of this sector as a source of high tax revenue, previously by the states through their state excise taxes and now by the Goods and Services Tax (GST) Council, which has recommended high tax and excise duties on CSDs,” said the spokesperson. report said.

First publication: Oct 6, 2024 | 10:37 am IST