The new policy posted on delWine on the same date as it was announced, spells doom for fine wines in Delhi which becomes the second worst state in India so far as the excise duty is concerned-after Maharashtra. I hope someone proves me wrong on this point.
The new policy has made the excised duty variable at 30% of the declared MRP if Rs. 2000 or less. There is an incremental change of 20% for the value exceeding Rs.2000. Until now, it was fixed at Rs.150 a bottle irrespective of the value of wine. Thus it was slanted in favour of good quality wines. That made sense as the cheaper wines also compete with Indian wines and the policy encouraged the consumption of better quality wines.
That the latest move will all but kill the fine wine market in Delhi is beyond doubt. But what are the motives behind this act? After all, the Delhi cabinet had passed a proposal last March to make the excise duties MRP based at 25%. It was all but implemented. At the last minute the wisdom had prevailed and a status quo was maintained. One year passed without the bullet hitting the skull, after delWine had reported soon-to-be-announced policy as the Breaking News. In fact, many importers were able to make a fast buck by flashing this new policy about to come in force.
What was the motive behind increasing the duty and what made the government decide to postpone it. There are many versions. The most plausible reason appeared to be the imminent elections and the practically nil duties in the adjoining state of Haryana, which has still not increased the excise duties though the license cost for retail shops has hit the roof this year, making the distributor pass on the increase substantially to the consumer. The excise duty savings in Haryana would have meant high scale leakage across the state into Delhi.
Although pressure from Maharashtra who had already increased these duties to 200% in July 2007, soon after the central government had announced the waiver of the special additional duties, Delhi had maintained the same excise duty structure, arguably due to the Commonwealth Games 2010.
The protagonists against the increase in excise duties are quick to point accusing fingers at a couple of influential Indian producers and their proximity to the agriculture Minister Sharad Pawar whose family owns a huge chunk of grape growing land in Maharashtra. He is one of the few governmental officials who has gone on record that wine is an extension of food and should be encouraged as a food product, though predictably he would like Indians to be Indian and buy Indian, at least the wine.
The other factor, and the stronger one, is attributed to the strong Indian spirits lobby exerting their money power influence, specifically through CIABC (Confederation of Indian Alcohol Beverage Companies) who might not want consumers to drink wine or imported spirits as it would affect their top line, bottom line and the middle girth of some of the powers that be.
However, it is a compliment to the unity of these spirits producers that under this one CAIBC umbrella, they are in a position to exert influence with what they are armed with. Wine importers are a new breed, a fragmented sect, a bickering and a scared lot who do not have the will or the trust in their fellow competitors or the money power which is strongly needed. Indeed, the mistrust sprang up a year ago when there was an uneasy alliance in Maharashtra between the wine producers, importers and the spirits importers who had the last laugh when they were able to get lowered excise duties on spirits than wine!
What is also surprising is that the Hotel Industry did not come forward through FRHAI or any other organized body as they are the big losers due to the direct hit with the excise duty increase. Used to a mark up of 300-600% or more, many of them plan to increase the price only to the extent of the cost increase without the ripple effect.
What was required was a concerted effort by the hoteliers and the importers to lobby with the government who on the face of it feels that the elasticity of demand is too low for wines drinkers. A senior government official reportedly commented to a wine importer that wine drinkers are affluent enough to absorb the difference of a few hundred or thousand rupees!
There are lobbies to support Indian wines but none to push even the basic laws that may ensure WYRBWYGI (what you read on the bottle is what you get inside). Under the implicit protection they are busy churning out the Ambassadors and Padminis when they could soon be producing Suzukis, Hondas and BMWs with competition from imported wines and consequent collaboration of technology, equipment and even the financial resources from these countries.
Will the new policy bring higher revenues to the government? My guess is no, it wont. Mr. P C Chidambaram who believed in consistently reducing taxes and increasing the revenues, might even agree with me. There will be increase in the coffers of states like Haryana and possibly even Chandigarh, is my guess.
The government should instead have reduced the annual license fee for people importing only wine or even beer (the low alcohol beverages) to say Rs.200,000 instead of the current Rs.500,000. At present, many importers are constrained to use the license of bigger importers or middle men-they would gladly pay for their own license, if it were reasonable.
Similarly, the government should reduce the label registration charges to nominal Rs.500-1000 per label. This would facilitate more importers bringing in more labels and pushing more sales thus benefiting the consumer as well as the exchequer.
The most important step would have been to allow the sale of wine in supermarkets-something which has been in the files gathering dust. Go to Gurgaon and see how pleasant it is to shop in the supermarkets and the air-conditioned stores in the malls where even housewives can pick up a couple of bottles of wines for dinner with chicken and biryani. This is the same State where prohibition was forced on the people only a couple of decades ago! Today, it has become one of the progressive states in India, belying all theories pushed by the cupboard drinkers.
With the strong Congress government elected to power, one hoped it would take pragmatic decisions on the wine policy. It looks like the Delhi government is too concerned about completion of the infrastructure for the 2010 project rather than the seemingly minor matter of wine. But from an outsider point, it is a highly regressive move.
But if you are on the inside in Delhi, try to grin and bear it and think of Maharashtra and think things could be worse! And coax as many non wine drinking friends as you can into picking up a couple of bottles of good wine for you from the duty-free shops, every time they travel out of the country.
Who know the common sense may still prevail over the Delhi government and it may roll back the excise duties to what it has been so far, well in time-for the Commonwealth games next year, so that the tourism may get boost in the Incredible India!