Prices of imported liquor are set to plummet.
The government is expected to withdraw additional customs levies on foreign wine and liquor, which is likely to lead to a 20% to 44% drop in the retail prices. A formal announcement is due in the Union Budget to be presented on 28 February, according to two highly placed government officials who did not want to be quoted because of political sensitivities.
If the proposal is approved, it will also bring to an end an increasingly acrimonious trade dispute betweeen India and the European Union over the imposition of special customs duties. The EU has already threatened to take the dispute to the World Trade Organization.
“It will destroy all the three existing local players,” said Kapil Grover, director of Grover Vineyards Ltd, a domestic wine company, in an interview with Mint. He maintained that “cheap bulk wines” have been entering India and the domestic vineyards had in fact proposed to the government last year that duties should actually be increased on such products.
The extra duty was levied by the government to level the playing field on imported liquor as domestic liquor and wine makers need to pay state-imposed duties. The additional customs duty, introduced in 2001, ranges from 25% to 150% on foreign whiskies and 20% to 75% on overseas wines. The additional duty is over and above the basic import duty, which is 100 % on wines and 150% on spirits. As a result, total taxes on imported wines and spirits range from a high of 212% to an astronomical 525%, depending on brands.
According to the International Spirts and Wines Association of India, which represents foreign liquor companies, if the government removes the additional customs duty and does not introduce any other new taxes, the reduction in retail prices would be Rs500 per bottle on popular Scotch whisky brands such as Black Label, which sell for between Rs 2,400 to Rs 2,700 for a 750ml bottle. The reduction would be Rs 200 per bottle for less expensive imported brands, such as Teachers, which retail for Rs 1,100-1,400 a bottle.
“The duty cut is the result of a strong lobby working in favour of the foreign companies,”Grover said.
Of the total liquor imported by India, nearly 80% cent is whisky. Out of the 5,80,000 cases of whisky consumed in India during 2005-06, the International Wines and Spirits Record says foreign whisky accounted for about a tenth.
Similarly, wine consumption in India as per the report was 9,50,000 cases, of which 8,15,000 cases were locally made wine, with the remaining 17% being imported. A case is usually 12 bottles.
Vijay Rekki, president of United Spirits, said if the Centre plans to cut the duty before empowering states to charge a special fee on the imported spirits, it would hurt state government tax collections.
“If the government wants to cut custom duty on imported spirits to appease the European lobby, it should have bargained for acceptance of Indian made foreign liqour imports to the Europan region as well,” Rekki said.
Currently, molasses-based whisky, which is made in India, is not recognised as whisky in Europe, raising export barriers, he added.
(C.H. Unnikrishnan in Mumbai contributed to this story.)