Home >Economy >Tariff reduction on alcoholic beverages in future FTAs needs to be carefully designed: ICRIER study

Duty reduction for intermediate products of alcoholic beverages can enhance value addition in India and boost domestic manufacturing potential contributing to the Atmanirbhar Bharat Abhiyaan of the government, a report published by New Delhi based think tank ICRIER said on Friday.

“High import tariffs and cess of 150%, even for intermediate products, counters the basic premise of “Make in India". The government should focus on phased tariff and other duties reduction and Indian companies should be encouraged to export to improve the trade balance," a team of researchers headed by ICRIER professor Arpita Mukherjee said in a study titled “Developing Principles for regulation and pricing of alcoholic beverages sector in India."

The FY22 Budget brought down the basic customs duty (BCD) to 50%. However, it introduced an Agriculture Infrastructure Development Cess (AIDC) of 100%, which maintained the overall tariff level unchanged at 150%. “While cess of any kind is not generally considered as a duty of Customs, Section 115 (1) of the Finance Act 2021 refers to AIDC as a duty of Customs, and hence India’s trading partners can take it up during the discussions with their counterparts in the Indian Ministry of Commerce and Industry," the study said.

The report said data shows that India is a large importer of intermediate products for whisky production. “Imports of final products are limited. India primarily imports intermediate products. The survey findings indicate that imports account for roughly 1-1.5% of the total volume of consumption. Imports of final products may be low due to high tariffs or due to limited domestic demand," it added.

The survey showed that most Indian whisky producers export products in bulk while subsidiaries of multinationals such as the Pernod Ricard India Limited and Diageo India mostly export in bottles. “While exports are getting diversified to new markets such as Thailand, companies in India have not ventured into market such as the EU, as it has strict import requirements including the 3-year maturation period for ‘Scotch’. Only one company ‘Amrut Distilleries’ is currently engaged in exporting to the EU," the report said.

Further, exports are also constrained by high logistics costs in India and lack of proper climate and storage facilities for maturation, the study found. “Moreover, Scotch is a geographical indication (GI) product and thus companies are aware that exporting such products from India when there is high import duty on raw materials may not be a viable proposition. The growth of the Indian market does create large domestic demand and, therefore, some survey participants opined that exports have received low priority in their business models," the study said.

The report said if India enters into a trade agreement with the UK, EU or the US, then Indian companies should be encouraged to export to improve the trade balance. The study, however, advised tariff reduction to be carefully designed in the free trade negotiations as some of the alcoholic beverage companies who have already established manufacturing facilities in India for certain products may face competition if prices are reduced due to lower tariffs.

“Due to regulatory complexities, not many players have come up in this sector, resulting in an oligopolistic structure. While FDI is allowed in manufacturing, fresh investment has remained low because of the regulatory complexities and high import tariffs on intermediate products used in production. This not only affects manufacturing but also employment generation, investment and exports. This trend goes against the ‘Atmanirbharta’ concept introduced by the Prime Minister," the report said.

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