Cooked in wood, tempered with taxes

The warehouse in Haryana’s Karnal, off the busy highway connecting Delhi to Chandigarh, is in a village named Indri. The village now lends its name to a new single malt brand launched in mid-2021. Branded Indri-Trini, the premium three-wood whiskey crafted by Piccadily Distilleries is made from six-row Indian barley grown in Rajasthan and matured in three different casks. The imported barrels which once stored bourbon, wine and sherry add an array of flavours and aroma as the malt interacts with the wood while ageing.

To qualify as a single malt, the whiskey must be a product of a single distillery, though the malt can be matured in different casks.

Indri earned itself some bragging rights within a short span. In the year to March 2023, Piccadily sold 15,000 cases (of nine litres each) of Indri, an impressive count going by industry standards. Since its launch, it has won a handful of international awards, including a gold tasting award at the International Spirits Challenge, London, and another gold from Dominic Roskrow who ran a ‘New Wizards Awards’, both in 2022.

Dominic Roskrow, a maverick whiskey critic and writer, died late last year. He was an authority on ‘new world whiskies’—or whiskey crafted beyond traditional hubs like Scotland and USA.

The rise of single malts from India, the world’s largest whiskey market, follows a long journey which began more than two decades ago. Even 10 years back, Indian whiskies were frowned upon internationally as most distillers used molasses, a by-product of sugar production, which was in abundance. Within India, it was sold as whiskey but the world liked to call it rum. Faced with a crippling shortage of food post-independence, for years, distillers shunned making whiskey from grain spirits.

Then, in 2004, Amrut Distilleries from Bengaluru launched a single malt in Glasgow, Scotland, marking the beginning of a new category of premium world whiskies—the Indian single malt. Ever since, the segment has grown rapidly with at least nine brands on offer by 2022. Among them are Paul John from Goa, Rampur by Radico Khaitan and Solan Gold by Mohan Meakin—makers of the popular Old Monk rum. Even Diageo, among the top spirit sellers globally and makers of Johnnie Walker blended scotch whiskies, launched an Indian single malt named Godawan last year.

Within India, the premiumization is driven by the growing affluence of a section of the population. The rich were already consuming large volumes of imported scotch, which were blended with Indian grain spirits. Recently, India replaced France as the world’s largest importer of scotch whisky by volume.

The early makers of Indian single malt—like Amrut in 2004 and Paul John in 2012—went for an international launch for a reason. They wanted to prove that Indian distillers can make premium whiskey and compete with renowned brands in their home turf. Also, the global market held a promise beyond the over-regulated, complex and heavily taxed domestic market in India. The international accolades, in turn, helped shore up domestic sales.

“India has broken through this barrier now… (of) people’s perception of the best whisky coming only from Scotland. Yes, some of the best whisky comes from Scotland, but so does some of the worst. People have preconceived notions and perceptions that are carved in granite, when in fact there are quite a few top-notch whiskies coming out of India," whiskey critic Jim Murray said in an interview to Firstpost in 2019.

Out of stock

What made Indian single malts stand apart in the international market? In a tropical climate like India whiskies mature faster. “Our whiskies are almost cooked in wood," explains Surrinder Kumar, former master distiller at Amrut who also developed Indri. The angel’s share is high. The exchange between the malt and the wood as it contracts and expands lends it a unique flavour profile. If one compares four different whiskies matured in four different regions of India—even when they follow the same process—the flavour profile will be different due to differences in temperature and humidity.

“You cannot make an Amrut in Haryana or an Indri in Bengaluru," Kumar added.

Sure, domestic consumers are loving these different flavour profiles. About a fourth of the 475,000 cases (of nine litres each) of single malt consumed within India now comprise home-grown brands, according to estimates from the Confederation of Indian Alcoholic Beverage Companies (CIABC). Indian single malt makers are currently producing around 225,000 cases. A part of this is exported.

Of the estimated whiskey consumption (in 2022) of 240 million cases in India, about 80% are cheap variants, priced at less than ₹500 for a 750 ml bottle (taking Delhi as the reference market). These make little money for manufacturers. So, many distilleries are targeting the premium segment—priced at over ₹1,000 a bottle—which account for 8 million cases.

“Within the premium segment, single malts have seen massive growth in consumption in recent years. Since Indian single malt distillers did not plan for this surge in demand, some have run out of spirits," said Vinod Giri, director general of CIABC. This explains why retail outlets in major cities often run out of Indian single malts.

“In comparison, imported brands have the advantage of past inventory. Besides, since they supply all over the world, they are better placed to cater to the surge in demand in one market," Giri added.

Few years back, Japan too, witnessed a massive surge in demand for aged varieties of single malt which led to shortage on the shelves. Since malt matures faster in India, distillers are better equipped to handle the demand spike. Yet, ageing the malt for at least three years (single malts have to be aged for at least three years), means a temporary setback to local supplies.

Rocky beginning

The journey of the Indian single malt began in July 2002. Rakshit Jagdale, the current managing director at Amurt Distilleries, was then pursuing a management degree at Newcastle, UK. For the course dissertation, Jagdale took his father’s suggestion and did a project on the potential market for an Indian single malt, sold via Indian restaurants in UK. Jagdale imported samples of malt maturing at Amrut’s facility and did a tasting survey, which received a favourable response.

One afternoon, during a blind tasting at the popular Pot Still bar in Glasgow, whiskey connoisseurs mistook the Amrut sample for a 12-year-old highland scotch. “They were shocked when told it is a product from India. That gave us a lot of confidence," Jagdale said.

It took Amrut another two years to launch the first single malt at the Café India restaurant in Glasgow in 2004. But three years into the project, the going got harder. In 2007, a meeting with a distributor in London did not go off well. They rejected Amrut. The Jagdales were told that an Indian single malt held little potential. But Amrut chairman, Neelakanta Rao Jagdale, took a call to persist even “at the risk of losing some more millions."

Then in 2010, Jim Murray’s Whiskey Bible rated Amrut Fusion as the third finest in the world. “This has to be one of the great whiskies found anywhere in the world; from distillation to maturation, this is genius whisky from whichever continent," Murray wrote. The tide had turned.

Around the time when Amrut launched in Glasgow, Goa-based John Distilleries was mulling a similar entry, away from whiskies catering to the lower end of the market, into premium single malts. Following eight years of research, travels and groundwork, it launched a single malt internationally in 2012, and in India three years later.

“I still remember the smirk on the UK immigration officer’s face when I said I am here to launch an Indian single malt. Initially, there was a lot of apprehension since India was known to make whiskey from molasses, and doubts, if we were following proper (manufacturing) practices," Paul P. John, chairman of John Distilleries told Mint.

“But over the years, the accolades began to flow; now you have fans of Indian single malt across the world. In fact, some the best single malts are now coming from Asian countries like Taiwan, India and Japan," John added.

The Indian market, too, has evolved over the years. For brands like Paul John, Amrut and Indri, India is now the single largest market accounting for 60-70% of sales.

As a strategy, Piccadily, which is the largest independent malt distiller in India, is getting rid of cheaper, low-margin brands. “We are currently available in 11 states in India and 16 countries internationally. The plan is to expand to 22 states in India. I am often told that Indri is priced at a discount ( ₹2,800-3,000 for a 750 ml bottle in Gurgaon) for the quality it offers. But I want people to drink the liquid," said Siddhartha Sharma, founder of Piccadily.

But going ahead, adds Sharma, India will need to introduce regulations and standards around single malts to prevent fly-by-night operators from spoiling the party; there is still a trust deficit in international markets.

Unfair treatment

India imposes a 150% duty on imported alcohol, including on Scotch whiskey. Currently free-trade negotiations are on with the UK, which can potentially result in a reduction of duties.

But Indian brands are confident. “If we can compete in the global market and still sell whatever volumes we produce, why fear a duty reduction? Besides, it will be beneficial for Indian distillers who import scotch for blending. Blended whiskies will become cheaper and their quality will improve," said Sanjeev Banga, president of international business at Radico Khaitan, which launched its Rampur single malt in 2016.

“On the flip, side non-tariff barriers imposed by UK will need to go; Indian manufacturers cannot sell regular whiskey in UK because they insist on at least three-year maturation. That is suited to the weather in Scotland but not in India where the malt matures faster," Banga added.

The domestic industry is fine with lower duties—say, a duty cut of 100% spread over 10 years—if the agreement secures a level playing field and does not encourage misuse of trade concessions, said Vinod Giri from CIABC, the industry lobby.

“But non-tariff barriers like maturation requirements must go. We are against the practice of under-invoicing. Presently, an international brand can import premium whiskey for its domestic subsidiary at very low prices. How will premium domestic brands compete?" Giri asked.

But this is not the only pain point for Indian brands. In India, liquor taxes are decided by state governments which often impose higher taxes and license fees on domestic brands. For instance, it costs an international brand just ₹50,000 to register a label in Delhi, while domestic brands pay a staggering ₹25 lakh license fees per label.

In November 2021, Maharashtra reduced excise taxes on imported liquor from 300% to 150%, while domestic brands are taxed at 300%. Together, Delhi and Mumbai account for over 70% of premium liquor sales.

This sort of taxation is structured to encourage import of low-volume premium liquor; taxes and fees for domestic brands were kept high as they were seen as mass market players with large volumes. The reality is different now, with domestic premium brands entering the market. Higher taxes on domestic brands also means they hesitate from releasing premium limited-edition liquor as that entails higher overhead cost per bottle.

According to Giri, this anomaly is hurting low volume premium brands from India. “It may sound odd but if an Indian single malt distiller decides to manufacture in Sri Lanka and then import it to Maharashtra, its products will be cheaper by 20-30%."

Despite the adverse tax regime, distillers remain hopeful. “The Indian market has come of age... domestic sales now account for two-third of our annual sales of 60,000 cases. Of course, the international accolades helped us increase our domestic footprint," said Rakshit Jagdale from Amrut, adding that surging demand prompted it to increase distillation capacity by 25% over current levels.

India is witnessing a generational shift in drinking culture, said Piccadily’s Sharma. “Drinking is also an experience—something to unwind with. Alcohol is not just about getting drunk anymore."