| The
additional duty on liquor, took the total import duty
to as high as 550% earlier. Now the customs duty will
come down to 150% (actually 164%, including some residual
special duties), resulting in a significant drop in
the retail price of whiskies, vodkas, gins and other
hard liquor- of up to 30% or more. Beer will share similar
benefits as the basic duty remains unchanged at 100%.
Wine, on the other hand may suffer as the basic duty
has been increased from 100% to 150%, which is within
the agreed outside limit with WTO. The more expensive
premium wines, which also attracted 100% basic duty
but only 20% ACD, compared to 75% ACD on the cheaper
wine (under $25 a case), will
become costlier.
It should have been a matter of common sense to keep
beer and wine in the same category due to their lower
alcohol content, even though wine has more health benefits,
proven consistently by several neutral, multi-national
scientific studies.
Possibly, due to pressure from the local industry the
duty on wine, and not beer, has been raised to the maximum
of 150%. The domestic beer market is a lot bigger in
size. With 105 million of beer cases consumed annually,
one would think that keeping the duty at same level
will hurt the local beer industry even more.
There is a general consensus that the low end foreign
wines (less than $25 a case) will benefit the most,
of course. The retail price of these wines will come
down between 25-30%, bringing them much closer to the
price of domestic wines. This will be the area of concern
for the domestic producers-provided however, that the
states do not take counter measures to increase the
local duties.
Says Kapil Grover, MD and senior partner Bangalore
based Grover Vineyards, 'What prevents Maharashtra from
increasing the state excise duties on imported wines?
After all, they already charge unfair duties of 150%
on the assessable value of our wines as out of state
wines.'
Indeed this is quite possible. Grover decided to start
buying grapes from Maharashtra to produce its Sante
label to save these heavy 'import duties'. A bottle
of La Reserve, that used to cost Rs.440 in Delhi till
March this year, costed about Rs.650 in Mumbai-it will
become more expensive than many imported wines under
the new duty regime unless the state applies extra duties
on the imports as well.
The government seems to have taken a hasty decision
to keep WTO at bay. Earlier, it had announced that legislation
would be passed in the parliament which would allow
the states to charge a maximum of the same duty on imported
wines, out of state wines and the domestic wines. It
announced a few weeks earlier that the states had been
taken into confidence, only to retract and infer that
the states would be allowed to recover the losses due
to scrapping of ACD by bringing out their own excise
policies.
In so doing, the government appears to have overlooked
a major protagonist- the WTO. Indeed, the first reaction
of EU and US to the cut has been a guarded optimism.
Any such move by the states would be opposed by EU and
WTO and other signatories to WTO. Adds Kapil,' they
should have passed the requisite legislation before
taking this step.'
Agrees Aman Dhall of Brindco, who is not only the biggest
wine importer, but also a stakeholder in Grover. He
may face rough waters ahead because he had right aligned
the prices of Grover wines (read price increase of Rs.
40-100 a bottle) after taking over its all India distribution
in April this year. He is fairly certain that the states
will play a spoil sport in the current scenario.
Nevertheless, Kapil feels certain that they will achieve
the sales of 1.2 million bottles this year as compared
to 800,000 bottles in the previous year, a whopping
increase of 50% despite a price increase of 10-20%.
Sula Vineyards, the fastest growing of the three top
producers (Indage continues to be the leader) on the
other hand is maintaining a brave front.' The withdrawing
of additional customs is good, but I think the Indian
wine industry needs protection from cheap wine imports,'
claims Rajeev Samant, CEO & MD of Sula Vineyards.
'Wine producers in the EU, because of the common agriculture
programme, are heavily subsidised. We are not. We still
need some protection from the cheaper wine imports.'
However, he is sympathetic to the case of premium
wines. 'We should not put the duties that we do, on
expensive wines. There is no point putting a 150 per
cent duty on a wine that costs $50 in the first place.
What we would like to see happen is that the entire
ad valorem system that we currently have now, be replaced
with a flat duty of say Rs 250. The cheaper wines would
become more expensive while the expensive wines became
much cheaper. That is what we would support," he
adds.
Sula and Champagne Indage have, themselves, been the
beneficiaries of cheap wine imports in bulk and bottling
them in their own brands and marketing them at hefty
mark ups. With the heavy duty on bulk wine imposed by
the Maharashtra government over the years ceased to
be remunerative. This practice has been reduced to a
trickle and passed on to the scheming entrepreneurs
from Goa to Bhatinda in Punjab .
The true beneficiaries of the new policy are importers
like Brindco, Sansula, Global Tax Free Traders, &
Mohan Exports etc., who I have often labelled as the
' Old World' importers. They were dealing in the liquor
imports earlier and entered wine imports, sniffing a
future opening. The opportunity turned golden when the
government made imports duty free for the hotel industry,
under certain easy conditions and they became the biggest
wine buyers, cornering over 60% of the total trade paying
zero import duty and with a sudden demand that outstripped
the supply for a while.
It is ironic that while the basic duty on wine has
been increased from 100% to 150%, the zero duty structure
still remains the same for this powerful lobbying hotel
group.
Beer importers will also be benefited significantly
as the basic duty has been maintained at 100% and the
costs will come closer to the domestic brand. Says Sanjeev
Gupta, of High Spirits, who imports the German Paulaner
beer, 'duty will come down from Rs.44 to Rs.24. It should
become cheaper by Rs.25 per can.'
The 'old world' importers are hardly complaining. They
are ready to reap the profits due to expected increase
in sale, whether it is whiskey, beer or wine. 'And why
not?' says Mukul Mehra of Global. 'We have been suffering
losses for the last so many years. Now, when we can
make some profits, why should anyone grudge that,' he
adds.
With customs duty on Grey Goose vodka set to come down
from Rs.1300 to 900, Absolute vodka dropping from Rs.
435 to 195, and the black label falling from Rs.1060
to 780 (and don't forget the reduction in the corresponding
VAT @20%) he is ready to bring down the retail prices
from Monday and is confident that the increase in sales
will be significant.
He rues the price increase his premium wines are going
to suffer, though. His popular brand Casillero del Diablo
may see a drop in the customs duty from Rs. 340 to Rs.
267, but his proud possession Laurent Perrier will see
an increase of duty from Rs.1224 to Rs.1383. Similarly,
his premium Burgundy brand Joseph Drouhin will see a
jump of Rs.180 per bottle in the existing duty of Nuits
St. Georges, and the Chambolle Musigny will become costlier
by over Rs.250.
But he is not complaining. With an expected overall
sales growth of about 30,000 cases of imported wine
during the 9 months of the year in the Retail alone,
he is teeing up to share the bounty.
In the meantime, the Laurent Perriers and the Joseph
Drouhins will keep wondering what hit them when The
Great Indian Duty Cut that took place with the stroke
of a pen on June the 3 rd, 2007!
And the palate of the hapless wine lovers will be deprived
of an upgrade to finer tastes. He may even have to turn
to the more affordable lifestyle alcobevs like single
malts! I wish they would stick to Coronas, Heinekens
and Paulaners, instead.
Subhash Arora
July 11, 2007
Indo Asian News Service picked up a variant of
this article on Sunday, which has appeared in many newspapers.
Some of these are:
Wine Prices go up as ACD goes away
http://economictimes.indiatimes.com
Beer, spirits get cheaper, wine will get dearer
http://www.dnaindia.com/
It also appears in Wine Business International
as:
Duty Reduction Makes Premium Wines more Expensive
http://www.wine-business-international.com
|
