License for imported alcohol products
To sell imported wine and/or liquor in Delhi, an annual excise license needs to be procured by the wine importer on payment of Rs.500,000 and fulfilling strict procedural requirements. One can sell wine, or any imported liquor or spirits. This means that the person who holds the excise license can become a distributor for several importers who have to pay only the label registration charges. By working out the internal arrangements, the license holder becomes the distributor and can theoretically make his own licensing cost to nil or even make some profits by representing several importers.
The earlier license fee of Rs.200,000 was increased to the present amount a few years ago. Whether one imports spirits or only wine is immaterial; this motivates wine importers to add liquor to the portfolio as well, sooner or later. The spirits importers anyway are not as much affected as it is the wine importers who find this amount to be too high, thus limiting the players in the wine import sector and discouraging new entrants.
Anti-competitive label registration charge
In addition to the L-1 license fee of Rs.500,000 the Indian producer has to register each of his wine label by paying additional Rs.50,000 a label. This covers the registration cost chargeable at 1% of the wholesale cost-subject to this minimum. If a wine sells for Rs. 500, the wholesale price after removing the taxes including the VAT @20% is around say Rs.300. The assessed case cost would be Rs.3600-implying the label registration of Rs.36 a case. If the sale is up to appx 1400 cases (Rs. 50,000/36), no more charges need be paid. For higher sales, Rs.36 a case is charged which is an extra burden for a big company like Sula, Indage or Grover who sell perhaps more than 5000 cases of one single label.
Additional Vend Fee
The vend fee which works out at around Rs.50 a bottle, depending upon the slab rates, is extra and this is where the excise department generates revenues. It would make even more money, if the small producers were allowed to register at no label registration or a nominal Rs.1000-2000 a label to defray the overhead expenses, without the minimum Rs. 50,000 which is payable at the moment. More producers, more variety, more sales, more excise revenues, happier consumers, increased production, improved quality-where is the problem?
Unfair to the Small Producers
I had the unpleasant task of taking the lead and writing about this policy after the Hon’ble Minister of Food and Processing Industry, Mr. Subodh Kant Sahai stated at the first National Conference of the IGPB earlier this year that despite difficulties, the UPA government had been able to separate wine and liquor and I had disagreed.
I gave the simple example that despite the mammoth efforts of the ministry and the Hon’ble minister, the Delhi government had made it impossible for the small producer making some quality wines to enter the expanding and relatively sophisticated Delhi market making it an investment of Rs.700,000 before selling a single bottle of wine!
Many of our domestic producers making quality wines are languishing due to this anti-competitive policy as they cannot enter Delhi and the demise of their enterprise is imminent.
Articles 38 and 39
Article 38 sec 1 of the Constitution of India states that the ‘State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life’. Read it with Article 39 C which states that the action should be such that ‘the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.’
It is apparent that the Delhi Excise Department is being constitutionally unfair to the smaller wine producers and a corrective action must be taken.
MRTP and Competition Act 2002
The Monopolies and Restrictive Trade Practices Act 1969 has been modified and a new competition law called the Competition Act, 2002 is now in place though not yet in force fully. Only a few provisions of the new law have been brought into force but the Competition Commission of India under the new Act would be the right authority on whose shoulders the wine producers-especially the smaller ones can cry on.
Interestingly, even the big producers are not happy with the current regimen. Although Sula sells more cases than the minimum amount of Rs.50,000 justifies the excise payment, the CEO Rajeev Samant says, ‘we would like to see the registration charges of Rs.500,000 reduced to more reasonable levels. Moreover, we are not able to introduce many of our brands as the registration fee of Rs.50,000 does not justify introducing many of our labels,’ says Rajeev, adding that the registration charges in any case are too high, if you talk big numbers
Who will bell the cat
The question is who will bell the cat? Obviously, no dingle producer is ready for the hara-kiri. The couple of Nashik-based wine associations are more interested in wider issues like reduction of interest on loans, conversion of extra wine into alcohol and more subsidies in any ol’ way they can get from any source. They do not seem to be interested as this may not even be the common cause.
Ministry of Food Processing Industries and more specifically the Indian Grape Processing Board is the right choice-the only choice for spearheading this anti-competition policy, fit for a legal redress, if it were a private company one was dealing with. All constituents ought to be same for the Board and so they are in a position not only to take up the cause with full gusto, the result will mean a better and more universal acceptance from all producers of the Board- be it from Maharashtra, Karnataka, Haryana or even Mizoram.
Needless to say (actually, one needs to emphasize and say) that the dismantling of these two walls would expand the domestic wine market, encourage competition, improve quality and increase consumption. Of course higher excise duties shall be recovered.