| The country is buzzing with speculations about what the Finance Minister has in store for us wine lovers in the budget for 2007-2008 to be announced tomorrow. What is it going to be for the imported wines?
Let us hope that the consumer reeling under the heavy taxes gets a break. It will be good for the industry - foreign and Indian, as well as the consumer. But first.
The budget papers have already been signed and perhaps consigned to the FM's briefcase. No crystal ball gazing here. Just a reflection of what has been happening during the last one year.
There has been no change in the duties, which remain at that sublime figure of 264%. Availability in retail has improved in many places, with a lot more on offer from April, 2007. Hotels continue to enjoy the windfall profits of upwards of 300%-going up to 600% in many cases; true wine destination restaurants like Diva excepted.
Much before the present speculation of reduced taxes, we have gone on record that the taxes will come down during this budget. There is a specific reason for our enthusiastic optimism. Last August, when I interviewed Mr. Ajay Dua, Secretary to the Government of India for an article I wrote for Wine Business International, a magazine published from Germany , his mood was defiant on the issue of import duties on wine. When I mentioned to him about the EU planning to complain officially to WTO, he had brought up the subject of land subsidy in EU countries and some other issues which he said must be sorted out before the Indian government would consider any liberal stand on taxes.
However, subsequent to EU filing the official complaint with the WTO, a case ( http://www.indianwineacademy.com) which India is likely to lose, his mood was softer and yielding. 'Something will happen during this budget, just wait and see', he said a few months ago. We have waited and now let us see what tomorrow brings.
If the taxes come down, they would not be due to vision of our government but the external forces; which is sad. Import duties on wine- a healthier option than liquor, have been back breaking. This has resulted in the import of only entry level wines for retail. Some of these labels are not even comparable to the decent Indian brands at less than half the prices. How fair is that to the consumer? Especially, when you see fashion clothes, leather accessories and even food being imported with duties of less than 40%.
DelWine supports the continued growth of Indian wine industry but we believe the consumer deserves a better shake. Their rate of growth has been significantly higher (35-40%) for the Indian wines than the imported version (25-30%). We must realise that their quality will improve by competition with quality foreign wines and not by pushing sales at lower than the imported wine prices due to fiscal measures.
Let us understand that with wine grapes that cost Rs. 25-30 a kilo and yield 65% wine that sells for Rs. 400 a bottle has a pretty good profit margin even after deducting the taxes. It was a brave and confident Rajeev Samant of Sula, who once said that quality Indian wines will not have to worry about competition from cheap imports or wines bottled from bulk imports. Of course, the domestic wine industry would love to see imported wine sales gagged and India remain in the Premier Padmini and Ambassador Age!
The Indian wine industry is quite resilient and competition savvy. Introduction of Vino at Rs. 95 by Indage for the mass market, Santè at a little over Rs. 200 by Grover and Madera at comparable prices are some examples where the producers are already pro-active in increasing their market share. Sula is reportedly planning to bring out wines including sparkling wines at Rs. 200 tax paid when it starts production at the Pimpane winery. The new entrants-giants like Seagram's and UB can definitely fend for themselves, with any fiscal policy with no dearth of funds.
The real sufferers due to the tax reduction might be the newer, smaller producers whose wines need to improve significantly to the level of established players. Why should the consumer be made to suffer their wines at artificially high prices yielding exorbitant profits at the cost of consumer who is helpless because of high prices of imported wines?
One basic aspect of wine as a beverage is that it is not just a commodity and must not be treated as such. Wines from the same grape might be a different drinking experience from different producers, region and countries, due to the difference in soil and wine making techniques. You might enjoy a Sauvignon blanc from Sula, Vinsura or Grover-they offer different experiences; as different as those from Sancerre (France), Friuli (Italy), Casa Blanca (Chile), Rueda (Spain), Napa (USA) or Marlborough (New Zealand). It is not justifiable to compare these regions or wines, let alone the producers.
These imported wines must be available at reasonable price (once we understand that they do not have their Indian equivalents!). There has been speculation in some press recently that the basic import duty would be increased from the current 100% to 150% and the existing CVD of 150% will be eliminated. The net reduction might thus be to the tune of 105-110%. And of course, there is always the unknown and uncontrollable federal states that may decide to levy hefty excise duties on some pretext!
But this reduction should be fair and acceptable to consumers, for a start. Logically, the import duty should stay at the existing100% and CVD should be brought down from 150% to 0% as demanded by EU, in one or two stages. A final 100% duty is what everyone including the Indian producers and consumers should be able to live with. This will give the consumer a choice, and the competition to the Indian producers will make only the best survive. Those who do not come up to the quality standards will fall on the wayside; they can always sell grapes to the Sulas, Indages, Grovers and the Seagrams, and still make reasonable profits- contract farming is going to exist for a long time.
The lower duties will make wines more approachable in the retail outlets which, of late, have easier access to in many states. It is quite clear that the explosive growth in the market is going to come from retail (imagine the growth in tax collections!) and not the 5-star hotels who have kept their prices very high and pocket the high margins as a corporate policy; they are not interested in expanding the market. Their most common refrain is, 'wines are meant for ex-pats anyway' and we have seen most of the ex-pats at their fuming worst whenever this topic comes up.
It is not logic but the lobby that has worked with respect to the zero taxation policy of the government for the hotels. So, it is anybody's guess what happens tomorrow for this privileged class. But the astute hotel managements are already prepared for any revert back to the rational tax regime of equal taxes rather than the royal treatment they have been getting so far.
As a consumer we can only hope we do get a break.any tax break, in this budget!
Subhash Arora
February 27, 2007
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