Nobody denies that the talks between EU and India for the FTA have been progressing, albeit slowly during the last 4 years and the Indian side is quite inclined to reduce the customs duties on wine and spirits, if not eliminate them. The excise monster and the big VAT on wine will play the party pooper and the tough, archaic and complicated procedures bordering on illogical will remain a barrier for some time.
The current customs duty is 150% on assessed value-most hotels are exempted since they meet the criteria. There has been an additional special duty of 4% on the cumulative value, making a total of 160%. However, during the current year, this duty is being waived off subject to a plethora of documents.
No one in their right mind would dare to predict at this time, the final outcome of the FTA which the Indian government knows is in the country’s interests. But democracies are known to be imperfect especially where there are people of different beliefs and the political constituents of different mindsets. In the existing coalition government, the government doesn’t always manage to do what it thinks is best. It has been already accused of being passive and inactive on many counts. But our bureaucrats, who are some of the most intelligent people in the business, understand that the reduction in slabs where the cheaper wines are not ‘touched’ so that the domestic industry does not suffer, is in order.
General speculation is that Fine wines (one can only assume they would consider the wines costing above $30-50 C&F would fall in this category) would face a lower import duty of 40%,though I believe it should be 20% to offset the additional 20% VAT which will never be waived. When the whole country roared with anger last month because of the recent increase of Rs.6.50 (10%) a liter in petrol prices, a few states reduced the VAT marginally to appease the local populace-wine is never going to be treated as importantly as petrol!
The mid - price wines might have an import duty of 80-100%; one can only speculate that they would consider wines between $5-30 in this range– however, this is only conjuncture for the moment. Lower priced wines may not get the benefit as the producers are sitting with the proverbial gun in their hands and they do have a strong lobby and a reasonable demand to be allowed to survive and resist any reduction. No wine producing country will accept to be extinct and allow the foreign wines to prosper- even I would oppose it even though I love my Barolos, Bordeaux and wines from most countries.
But the big spoke in the wheel is the excise duty which most reports in the media seem to ignore- they simplify by comparing with Hong Kong, overlooking the fact that even Singapore had the option even though it has a relatively free economy but continues to charge fairly heavy duties- even higher than India for low end wines as they are fixed per bottle. India will never be like Hong Kong.
It is nice to dream of fine wines. I also dream at times of a beautiful cellar with such wines, only to be shaken awake when I remember that only 44 liters of wine can be stored in the residence. The procedural wrangles are infinite- for the importer, wholesaler, retailer and the consumer. Advertising of course is banned (liquor industry circumvents it smartly but openly) but the strict excise laws, most of which have arresting powers as an option, keeps everyone on tenterhooks – not a comforting feeling for the industry or the consumer.
Unfortunately, not only does the central government have no say in the State matters, being of Federal nature, the government looks the other way when the States go overboard. When the customs duty was reduced under the indirect directive from WTO in 2007, the government implicitly told the states to increase the excise duties at will. Ironically Delhi, one of the few States being ruled by the Congress party, as the main constituent of the UPA coalition, increased the excise duties many-fold and today has one of the highest excise duties in the country. If the central government has not shown any inclination to bring it under check, how can EU expect that these duties would also become zero?
Today it is legal to invest in fine wines abroad-be it London, Paris or Hong Kong which is much closer to be present physically for those who are inclined to invest in the fine wine market or wine funds which can operate out of India as well. As the exposure to fine wine increases, there will be new markets for these areas.
So what should the producers do? Go to China where most expect the bubble to burst at any time and at any rate the prices are not likely to explode any further? The answer is in the fundamentals that countries like the US, UK and Australia or even Japan have gone through. While we must continue to put pressure on the government and lobby, plead or do whatever it takes to make them understand the importance of lower taxes and the brighter future for Indian wines as they learn to compete with the foreign wines which will become more reasonable with lower taxes, we have to get more people to drink wine as a lifestyle and healthy product. We have presently 2-3 million people drinking wine (there are no surveys done but guesstimates only). The number needs to go to 20-30 million which is quite achievable in the next couple of decades.
There is still enough wealth in India to make these potential new wine drinkers imbibe the whole spectrum of wines, low-end to Fine wines. Not every foreign producer will be able to get a share of the market but the market is there. The road is rough and winding and long and not for the faint-hearted and weak-kneed. If you enjoy the journey to the Everest even though you know you may never reach the Summit, join the Club.
There are a plethora of articles I have been writing on the subject. The following are some of them- I think the message has been consistent. In the long term, India will be a great market but as the well-known economist Keynes used to say-in the long term we will all be dead!
Cheers!
Subhash Arora
Duty Reduction on EU Wines Distant Dream EU- FTA: Wine Tax Reduction Remains Pipe Dream
Blog: Jeannie's Got a Gun
Blog: Indian Market Choked not by Taxes Alone |