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Posted: Thursday, 06 May 2010 11:50

Blog: Shed a Few Tears for the Small Guy

In the difficult wine scenario in India, it is not only the customs duties and unreasonable excise duties in states like Delhi, that are irksome and a bottleneck in spreading the wine culture, but the label registration charges and the excise licensing costs are particularly harsh for small importers and  producers, constraining the availability of several good value for money wines too.

Take as an example Delhi- the Indian Capital that aspires to become a world class city before the Commonwealth Games in October. Before making the first sale, the wine importer has to procure an excise license costing Rs.0.5 million (US $11,000) annually-which normally translates into a sales period of around 11 months anyway. For example, most importers have still not got the excise license for this year (2010-11)-mercifully; the department had extended the same for 15 days into April this year.

Label registration

After getting the license, there are numerous bureaucratic formalities to be completed before a bottle can be sold. This includes a label registration charge which for Delhi is Rs.5,000 a label. If you have your cousin’s neighbour in Australia willing to ship you a pallet of wine to market, and he invoices you on payable- when -able basis, you have to shell out Rs.50, 000 for 10 labels- a number considered ‘below the poverty level’ so far as a wine portfolio is concerned-and there are at least 3-10 markets like Delhi where one would need to sell to make it a viable project, each state demanding its own pound of flesh through the licensing and registration and registration charges.

So, the small guy really feels the heat from the excise department of every state..

Small wine producers

If you think importers have got the wrong end of the stick, welcome to the world of Indian wine producers ambitious to sell in Delhi. The small importer can tie up with a distributor who has the excise license, at mutually acceptable terms which usually imply a fixed charge per bottle or a percentage of the sales amount.

But the Indian wine producer must take the annual excise license in the winery’s name at an annual fee of half a million rupees. Additionally, there is a registration fee of Rs.50,000 a label. This is only the minimum amount payable- in fact, the producer is required to pay 1% of the wholesale price. For a bottle selling for an MRP of Rs. 450-480, the wholesale price is around Rs.250, or Rs.3, 000 a case. At Rs.30 a case, the registration charge paid in the beginning of the fiscal year would allow the sale of only1667 cases, after which a further Rs.30 a case has to be deposited.

Let us take the case of Sula, the biggest Indian producer at the moment. If they register 16 of their Indian brands, they have to shell out Rs.800,000 (for label registration) and Rs.500,000 for the license fee. Including the smaller, sneaking additional taxes, it means an outgo of Rs.1.35 million before they can start selling in the new fiscal year (Apr-Mar).

It may be safely assumed that producers in the category of Sula, Grover, UB and earlier Indage ( which cannot get the license unless they get an NOC from the sales tax department to whom they reportedly owed over Rs.5 million in back taxes last year) would be able to arrange these funds. But a small producer-and there are quite a few who are now making decent wines and want to enter a market like Delhi, may not be in a position to set aside the funds required to register their wines.

If a small producer wants to sell even 4 labels, he has to shell out Rs.700,000+ before he can start selling just in Delhi. alone. Not many can afford to do it. It should be no surprise that in the national capital only 6-7 Indian brands are available- including Sula, Grover, UB, Nine Hills, Vinsura (off and on), Zampa

Registration-the barrier
 
It is ironic that a country that, for decades looked after the interest of the small guys by reserving over hundred industries for the small scale sector, penalizes small entrepreneurs who may have potential to be good wine producers but are restrained due to the fiscal and non fiscal barriers.

The government must consider reducing the annual license fee for selling wine-to a much small amount, initially to Rs.200,000 and then to Rs.100,000. Similarly the registration charges on imported wines should be reduced to Rs.1000-to 2,000 and more importantly, the label registration charges must be brought down to reasonable level of  Rs.5,000-10,000 a label for the domestic producers to enable the smaller ones get a share of the pie. At the additional 1% excise duty on the wholesale prices, there won’t be any revenue loss to the government- Sulas and Grovers would continue to pay the same amount of registration charges due to higher volumes but several smaller guys will be able to bring in several labels.

But rationalization has not always been the forte of the government in the wine sector. The least we can do is to shed a few tears for the small guy who is an important link in the marketing chain but feels restrained and frustrated. Meanwhile, the consumer is deprived of several good quality wines being produced by the upcoming boutique wineries- the ones that could raise the bar of the wine quality and take us closer to being an important industry during the next a couple of decades.

Subhash Arora

PS- We do not have any financial interest or stake in any winery- in India or overseas or with any importer.

Comments:

 

Sampath.R Says:

Thanks subash for finally associating the emerging wine industry with the small producers. I have been wanting to start a boutique winery for the last couple of years eversince the karnataka wine policy is in place. But every which way i plan , i am not convinced with either the license fee to the way the wine is being marketed. As you righly pointed out its the small wineries(with their own vineyards) which can produce good quality wines. The govt should actually encourage such ones in the near future.I am basically a viticulturist eagerly wanting to make my own wine out of the grapes that i grow in my own vineyard near bangalore (French varietals). I have been following your captions for a long time. This particular one promted me to reply because of the Botique wineries you have mentioned.Anyway lets hope for the best in the coming years Sampath.R.

Posted @ May 10, 2010 11:53

 

Dharti Desai Says:

Great punch, Subhash, but are the relevant people feeling the impact, and more importantly, what is being done about this? Every year, we complain and yet we go through the same pains. The only positive news I can share with "would be" importers is that the first year or two are painfully slow, but eventually you do get your license faster, but not necessarliy at a lower cost! This is our 4th year getting a wholesale license in Delhi and we managed to get it a tad bit faster than last year! Fingers crossed that we recover the costs this year! There needs to be greater unity among us to help each other through this and other excise processes.

Posted @ May 10, 2010 11:46

 

dkraju Says:

producers and importers of wine in India have to sit together and see how they can cooperate with each other in getting decent wines at an affordable prices to Indian wine drinkers.

Posted @ May 10, 2010 11:43

 

Avtar - Mushal Winery & Vineyards Says:

Thanks Subhash for highlighting a problem we have been battling since we started exporting wine to India in 2004. We had to discontinue due to prohibitive taxes and license requirements. We are now considering exporting only to Hotels directly. It is a shame that a wine lover is deprived of drinking wines of their choice. Shedding teras will not help, we need every wine lover to send their comments to the local media, State and Central Govt. Officials and Politicians. Only Public outcry will help. Sula is doing its bit to promote wine in India, it goes to their credit to have broken into this tough business, however, it will help if other wines also enter the market and offer a variety of wines.

Posted @ May 07, 2010 17:48

 

Subhash Arora Says:

Please do not despair. We in India believe in fate. If fate has in it for us to become a strong wine market, if fate has it that we shall make our populace move away from hard and spurious liquor to a healthy lifestyle product, God will give the bureaucrats and politicians the right direction. Big retail stores selling wines at competitive prices can bring boom in the wine consumption which is unthinkable in today's scenario. And you are absolutely right about India being a great emerging market-no thanks to the government so far. But we have to remain optimists. There are some intelligent bureaucrats and politicians who understand it. Subhash Arora

Posted @ May 07, 2010 11:05

 

Rex Erickson Brown Says:

Wow, we are working a deal to enter the market on the backs of a larger retail chain1 I hope the process is not as crazy but the opportunity to be in such an emerging market trumps all petty governmental hang ups!

Posted @ May 07, 2010 11:05

 

Tony Devitt Says:

Hi Subhash, Well done on pointing out another example of Government bullying of the smaller producer. Smart Governments support successful small producers because they produce diverse and innovative wines and they are employers of people as opposed to large producers who are dis-employers due to their technical efficiencies. Successful, vibrant economies are those where small businesses thrive. The unreasonable tariffs and costs imposed by the Indian Government as you correctly point are stifling the development of the Indian wine culture. The Government should be ashamed as the ramifications of their actions affect the lives of hard working (often family) businesses. Regards Tony.

Posted @ May 07, 2010 10:59

 

Alok Chandra Says:

Subhash, you've put the issue in perspective, but there's little chance that anyone in the Delhi government will pay attention. it is clear that they don't give a d#&m, and have merely extended the policy applicable to spirits & beer (dominated by big players) without application of mind. Perhaps if either of Delhi's Madams were 'seized' of the problem...

Posted @ May 07, 2010 10:56

 

Ashmita Says:

it really seems very awkward for us of this event as wwhen the common wealth games will going then all of as fokas to well treat with the foreigner and in the foreigner eyes we r only the servant for them. through dis v vil b able 2 prove our country"s

Posted @ May 07, 2010 10:50

 

Ash Mathur Says:

Subhash,this was one of the primary reasons why our importer/distributor in India couldn't import the wines (including the Ice Wine) from us here in Canada some 5-6 years ago! We have been sitting around with hopes that things might change there with the overall bureaucracy of importing and selling/distributing wines in India, however, to date based on your article...it doesn't seem that the government is doing anything to improve this situation!

Posted @ May 07, 2010 10:47

 

Subhash Arora Says:

Frankly I did not try. If stored properly, these wines should still have many years left. I'd appreciate it if you share the wines you ordered and the vintage. I was told that no one had complained about the wine quality. Subhash Arora

Posted @ May 07, 2010 10:42

 

Yog Raj Says:

Mr Arora We had a bad experience with Bin Ends at the Uday Vilas. The wine was tired and well past its age and obviously not been handled well in storage. I hope you have tasted these wines before recommending them and not recommended only o the basis of the price.

Posted @ May 07, 2010 10:38

 

Mel Lanvers-Shah Says:

We organise TASTE which is becoming a decent trade event for the sector. Lets pool the aspiring players and the policy makers at the event and see if clarity and fairness can be restored to the unfairly punished wine sector. Possibly a utopian idea but we could give it a go.

Posted @ May 06, 2010 17:42

 

Chris Pohl Says:

Indeed Subhash, we are currently registering 14 labels in 4 states - never mind the the money, but the run around and in fact the cycle is really only 10 month. well done once again!!!

Posted @ May 06, 2010 17:38

 

Rajiv Seth Says:

Mr.Arora The central marketing agency plan for Indian wineries is the only answer to this problem where small producers will be able to sell under a common label like Brand India Logo on the lines of brand Australia logo, this will remove the burden of label registration fee as well as high licensing fee . Moreover keeping common marketing force will reduce the expenditure on marketing . The commission genrated through the sales will help IGPB in genrating funds as ministry has only senctioned a very small funding for the Board's actvities.Forigne wineries can also join and thus will be provided a window to sell thier products on small commision. This will enhence the portfolio size of the agency which will add to its dominence in the market thus removing the monopolies of big market players.

Posted @ May 06, 2010 15:50

 
 

 
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