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India and Wine – New Developments

Just-Drinks reported recently on the fact that India may lower wine tariffs as part of the Free Trade Agreement (FTA) with the EU that is expected to be finalised this February. Customs duties on wine imported into India are roughly 160%. However State Taxes can also be imposed on top of this as alcoholic beverages are a state subject in India, so each state has its own rules and regulations and duties and taxes on wine.

The talks on the FTA have been ongoing since 2007 but have been held up over the issue of lowering import duty on cars and wines/spirits. The problem seems to be that the Indian government is insisting that it is unable to reduce tariffs as both products have a strong domestic lobby. The domestic wine industry has argued that lower tariffs would flood the Indian market with imported wines and have a negative impact.

However there have been indications that the Indian government is softening on the issue but the solution is likely to be complex. Subhash Arora of the Indian Wine Academy writes that even if the import duty is lowered various states may increase the duty on wines to neutralize the impact of reduction. He also explains that if the duty is lowered it may not be universal on all wines:

“Even the die-hard optimists would not bet on the treaty being signed in February, if wines and spirits were to be included in the duty reduction agenda of the FTA. However, it must be clear that the cheaper imported wines would be outside the purview of the FTA. In the past, the speculators who claim to be close to the political bigwigs, have suggested a 3-slab reduction – 150% (remaining same for cheaper wines), 100% (for medium price slabs) and 50% for the so called luxury wines. This seems to be a practical, fair and justifiable solution, for the moment. Specifically, import duties ought not be reduced on the cheap wines-say under $ 2 a bottle as this will be unfair competition for the fledgling Indian wine industry which has some serious players who will bring international fame to India in future.”

There are a lot of predictions about India’s potential wine boom if taxes are scrapped as they were in Hong Kong but this is pie in the sky. India does need to protect its own wine industry and whilst it would be fantastic for wine merchants outside India if taxes were scrapped, India’s own wine industry would be destroyed if this unlikely event ever happened.

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4 Responses to India and Wine – New Developments

  1. James Swann says:

    Good reportage, Nick

    The Indian relationship and culture of alcohol is nothing less than fascinating.

    We have carried out a fair bit of research and hope to publish something soon.

    The Free Trade Agreement has eluded the trade for some time, to the suffering of those pioneering its development in India, British and Indian alike!

    May I venture to say that it does appear as though some kind of breakthrough is in fact on the cards, albiet not with any immediacy. Trade insiders appear to tentatively give it a 50-50 chance, which is way more than anything that has gone before.

    One of the most telling pieces for us, as you highlight, is the notion of a staggered tariff system according to wine quality-price. This could serve to protect the local industry while beginning a process of liberalisation starting with fine and mid-priced wines. Nothing compared to the Hong Kong move, but it would, nonetheless, have its effects.

    A massive issue hardly reported on at all is India’s interest in free movement of labour, for some EU countries this is very sensitive. However, the EU-India FTA is the most important trade agreement the country has attempted, really its considered too big to fall, but, as always, there are no guarantees.

    It’s going to be another interesting year, Nick

    – I hope you don’t mind that I write so much on your web, it’s a subject that’s caught my attention!

    Thanks,

    James

    PS
    Great map, by the way

    • Nick says:

      Hi James,

      I am always grateful for your comments – and insights – so please feel free to comment as much as you like :-) I’m adding a link to your blog on my Blogroll as I am sure my readers will find your blog most interesting!

      Cheers

      Nick

  2. James Swann says:

    Hi Nick,

    Mark mentioned the Blogroll, thanks a lot, it’s a great complement.

    It should happen that the Financial Times is running a story on wine, India and the EU on Monday, it’ll be most interesting to see how they interpret developments. We know this because we submitted our research to them rather than put it on the blog, it’s a far-reaching subject so it’s a better place for it.

    I know trade actors in India, British or Indian, are not holding their breath, they’ve seen too many false dawns and you can’t budget to rumour. However, it would appear that India is ready to make concessions within the framework of the EU, but within which timeframe is another matter altogether.

    Certainly, India is in no position support fine wine prices or take up excess stock, although a breakthrough tariff reduction, were it to happen, might set it on that course.

    See you