New Karnataka rule to affect Maharashtra

New Karnataka rule to affect Maharashtra

Bangalore: In a move that would impact wine makers in Maharashtra—India’s largest producer—and help local wine makers, Karnataka has notified a new excise rule that raises the price of wines from its larger neighbour.

The new duty—Rs300 a bulk litre from Rs10 earlier—applies to all wines made outside of Karnataka and is seen by wine companies as a response to Maharashtra’s seven-year-old wine policy that exempts locally made wines from a 150% duty that all other wines have to pay.

The two states and Goa are the only wine producers in the country. Maharashtra has more than 51 wineries located mostly in the Nashik and Sangli regions while Karnataka currently has two wineries.

“The question is, do two wrongs make a right?" asked Abhay Kewadkar, business head (wines) at United Spirits Ltd, which sells Zinzi wine of its subsidiary Four Seasons Wines Ltd, based in Baramati in Maharashtra.

“It could bring our sales plunging down and also hurt the consumer in Karnataka," Rajeev Samant, chief executive officer of Nashik Vintners Pvt. Ltd, which produces Sula, had said in a phone interview in September. “But we do totally agree that Maharashtra also has very high duties on out-of-state wines."

On 22 September, the European Commission had raised a fresh dispute at the Geneva-based World Trade Organization (WTO) over trade barriers for wines and spirits in Indian states such as Maharashtra, Goa and Tamil Nadu that were inconsistent with WTO rules.

India’s current per capita consumption of wine and beer is far below the global average, and foreign companies see an opportunity in the increasing market for these goods, primarily driven by higher incomes in an economy growing at nearly 8% annually.

“We knew (imported) wine and spirits sales are going to dip immensely. Now, we have Karnataka to tackle," said Arun Kumar, director of Aspri Spirits Pvt. Ltd, an importer and distributor of foreign liquor.

According to Kumar, sales of wine, spirits and beer imported in bottles have just resumed in Maharashtra after coming to a standstill for more than two months because of confusion over duty.

Sales of imported wines were estimated at 275,000 cases in 2007-08, he added.

Around 1.3 million cases of wine are sold every year in India, compared with more than 150 million cases of spirits. Each case holds 12 bottles, each with 750ml.

However, Karnataka hopes that the new rule, which pegs the licence fee for setting up a winery at Rs5,000 and that for starting a wine tavern at Rs1,000, will give a fillip to wine production in the state.

“Eight new wineries are coming up (in Karnataka)," said L. Shanthakumari Sunder, Karnataka’s development commissioner, adding that the new rules would benefit the state’s farmers.