April 04: Competition Commission of India (CCI) has imposed a fine of Rs 10 million on Uttarakhand Agricultural Produce Marketing Board (UAPMB) for abusing its monopolistic power in the wholesale procurement and distribution of alcoholic beverages, with a direction to deposit the fine within 60 days and Cease and Desist from indulging in anti-competitive practices, writes Subhash Arora who believes that several such illegal actions are taken by the State governments but are not challenged due to fear of reprisals by the traders and a strong trade body is the only remedy
In an order passed on 31 March, after a detailed investigation into the case since 2016, the regulator said the Uttarakhand Agricultural Produce Marketing Board (UAPMB) was the exclusive FL-2 wholesale license holder government nominated body in 2016, which had indulged in procurement of alcoholic beverages from manufacturers in an arbitrary manner, resulting in denial of market access. It had also entered into agreements with some members of the International Spirits and Wines Association of India (ISWAI) with several one-sided and unfair clauses benefited only them.
According to the liquor wholesale order passed in 2015, UAPMB was appointed the exclusive wholesale licensee for foreign liquor, beer and wine, including IMFL (Indian Made Foreign Liquor) in the State of Uttarakhand. Garhwal Mandal Vikas Nigam and Kumaun Mandal Vikas Nigam were appointed as the exclusive sub-wholesalers but ceased to be sub-licensees in 2016.
The CCI in its ruling reported in DevDiscourse held that arbitrary procurement of alcoholic beverages by UAPMB, amounted to an abuse of its dominant position, resulting in denial of market access to big liquor companies like United Spirits (USL) and Pernod Ricard. The ISWAI had approached CCI in 2016 with a plaint that it was trying to drive these companies out of the state by favouring other suppliers and restricting their orders to minimal since the state government took over the liquor wholesale business for a year in 2015. This arbitrary procurement policy had resulted in the sales of brands of a few favourite producers at the cost of others which did not curry favour with the government body.
The arbitrary action of UAPMB led to a situation where the preferences of the end consumers were not taken into account while placing purchase orders of certain brands of alcoholic beverages, thereby distorting the market to the detrimental of manufacturers of certain brands of alcoholic beverages (more specifically Pernod Ricard and Diageo). The Commission, therefore, held that the unilateral conduct of UAPMB impacted the inter-brand competition of the brands of IMFL being sold in the State of Uttarakhand.
‘The commission notes that the main issue in the present matter is that UAPMB placed orders in a manner that was allegedly arbitrary and discriminatory, which resulted in a drop in market shares of USL and Pernod Ricard and there was an abject failure in its distribution based on demand, which in fact was the essence of the liquor wholesale order.’
Uttarakhand moved back to the private wholesale market system in 2016. It grossed about Rs 3,000 crore as excise revenue on alcohol last year. It is the 27th State of India carved out of UP (Uttar Pradesh) in November 2000 as Uttaranchal and renamed as Uttarakhand in January 2007. It grossed about Rs 3,000 crore as excise revenue on alcohol last year.
The CCI order is significant as a large part of the wholesale business in the wine and liquor trade in India is now controlled by state beverage corporations with a monopoly position. States like Rajasthan, West Bengal, Tamil Nadu and Andhra Pradesh control wholesale or retail or both. In states such as AP, top firms claim to have been edged out of the market like in Uttarakhand. Karnataka is an exception where the industry seems to be satisfied with the working of Karnataka State Beverages Corporation Ltd. (KSBCL) formed in 2003. Delhi came close to adopting the system on the lines of KSBCL twice but the decision has been stalled yet again in 2021.
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