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Farm loan waiver has an unlikely victim: Indian liquor firms

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By Ameya KarveA spate of political promises of waivers on farm-loan repayments in Indian states has an unlikely victim: alcohol companies. States are expected to hike taxes on liquor -- one of top three revenue sources -- as they need to plug fiscal hole arising from bearing burden of farm-loan repayments.

Any rise in tax will impact alcohol demand as companies will have to pass additional levy to consumers, according to Edelweiss Securities Ltd. Farm waivers are on agenda of all political parties as Prime Minister Narendra Modi struggles to alleviate agrarian distress ahead of a national election around May.

Modi’s Bharatiya Janata Party was voted out in three key states last month by Indian National Congress -- main national opposition -- which immediately announced waiver program after forming governments in Madhya Pradesh, Rajasthan and Chhattisgarh. Raising liquor taxes -- which bring in nearly 25 percent of revenue -- is most likely option as state governments are unlikely to borrow and worsen their debt to GDP ratios, Abneesh Roy and Alok Shah, analysts at Edelweiss wrote in an investor note Jan.

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“In past, there have been multiple instances where volumes have taken a beating owing to price hikes emanating from an increase in tax rate,” they wrote. Maharashtra increased tax on Indian-made liquor by 20 percent from Tuesday, Times of India reported, citing a bureaucrat it didn’t name.

Seven states have announced waivers totaling 1.75 trillion rupees ($25 billion) so far, according to Edelweiss. The brokerage remained underweight liquor stocks and retained its hold recommendation for United Spirits Ltd.




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