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It may not be incorrect to give credit to the UPA government for helping to introduce wine culture by initially freeing imports and then allowing customs duty waiver for hotels fulfilling certain requirements. Thanks to the open import policy, Excise policy of Maharashtra 2001 and continued efforts by institutions like the Delhi Wine Club and Indian Wine Academy pioneering in the area of consumer wine awareness since 2002 wine consumption has been steadily increasing during this millennium.
Health benefits and lower alcohol levels of wine and beer have been the key factors that need to be stressed regularly but unfortunately, the government had been lethargic about distinguishing between wine and beer and creating the differentiation. Even today, wine (and beer) is looked through the same tinged glasses as liquor, the unbridled misuse of which had made our forefathers explicitly discourage the use of alcohol in the Constitution. No distinction was made between wine and liquor because wine was not available in any serious quantity.
Reduction of Duties in 2007
The overall import duties on wine were reduced in 2007 by elimination of the Additional Countervailing Duty because of our Agreement with WTO. But the basic customs duty of 100% was increased to 150% to stay within the agreed outside limit. Coupled with the increased excise/special duties imposed by various state governments, the overall reduction was negated in most cases: in some States they even went up.
Domestic producers may not agree unanimously, but it is the presence of imported wines that created the wine market and the culture. This has happened in countries like Australia, New Zealand and the USA too. Domestic producers like Mondavi and Henschke had visited overseas to learn the latest technology and came back to make much improved wines. California had to produce better wines to compete with the best of Bordeaux and Burgundy wines because of the market demand and they proved highly successful.
Separate wine from Spirits
It is very important to encourage stabilization of the wine market –on one hand, by encouraging the imported wines to set a higher benchmark for the domestic producers and on the other, offer a wider choice to the consumers. There are two ways the budget can achieve that objective:
Rationalize the customs duties:
a) The current import duties of 150% is fine for a case costing $30 or less, since lowering these duties would have an adverse impact on the Indian wine sales and the quality of such wines is not special enough to be emulated by our producers. But there should be 2-3- more slabs based on the lines that existed prior to 2007 when import duties were reduced.
b) Wines costing $30-$72 a case should be charged the reduced duty- at 100%. These are the wines we need to increase consumption for and our producers need to emulate their styles and quality in order to compete with them.
c) Wines costing over $6-$20 a bottle ex-cellar are the ones that do not compete with the Indian wines and are much higher in quality. These should be taxed at 50%.
d) Wines costing above $20 each are perhaps the quality we may hope to aspire to achieve one day in India and may not even be possible due to our soils and the weather conditions. Decrease on duty will result in manifold increase in sales of these wines. They should be charged a duty of only 30% as a source of revenue.
Today, there is hardly any wine in this category being imported duty. Only hotels and restaurants enjoying duty free benefits can afford to import these wines. A 3-5 fold increase in this category can easily be possible from the current levels in the duty-paid section or in retail, thus compensating for the loss of revenues due to step b and c.
Thus, we recommend 4 slabs of customs duty at 150%, 100%, 50% and 30%. For administrative purposes many would recommend 3 slabs. But the fourth slab will bring in the extra revenues due to many-fold increase in consumption, without the Indian producers flinching.
There was a report brought out by the UK based merchants Berry Bros and Rudd a few years ago, that estimated that in 2050 China and India would be the wine producers to reckon with globally. Although China has made many strides in both the imported and domestic wines since that report was released, India has been static, if not a step or two backwards due to the myopic approach by the earlier government-partly due to lack of understanding and partly because of lack of vision.
Incentives for Indian wine exports
Thanks to the presence of foreign wines, there has been a distinct improvement in the quality of Indian wines some of which have reached international class. Unfortunately, the cost of inputs has gone up making them non-competitive in the overseas markets. In many other markets, especially in the EU, there are many subsidies available to the grape growers. An incentive of 20-30% on the export value will bring down the net costs and encourage exports. This may be organized through APEDA or another government body.
Research in wine agronomy
Wine is a food product and wine agronomy is labour oriented and can be very useful for our agriculture. As pointed out by Prime Minister Modi in Parliament yesterday, we must give fillip to this sector. We could give a boost in one of the two ways:
· We need to discover new areas and regions where grapes can be grown on a commercial basis and new industry may be set up. The existing or new producers find it financially unviable to spend their resources to conduct such experiments. Only Maharashtra and Karnataka have been successful so far. The government should offer a deduction of 150% of the expense incurred subject to a maximum limit, for the purpose of calculating income tax. This implies that for calculating for tax purposes, one can deduct 150% of the admissible amount with a top limit to be set by the government. This will encourage more people to experiment with newer soils.
· Alternately, it may encourage locating the new sector by advancing funds to the existing horticulture institutes run by the government, to spend on conducting trials throughout India .
There are other areas where indirect taxes and procedures need to be streamlined. However, they are subjects not tackled in the annual budget and are not touched here.
Subhash Arora
Tags: Arun Jaitley |