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Possibly upset that the FSSAI has been hogging all the limelight in 2014-15 for being a scourge for the wine importers, making them lose 15-20% of the market in 2014-15, the Delhi government has announced the enhanced annual license fee of Rs. 1.5 millions for the L-1F license (with a 250% increase over last year) which is mandatory for wholesaling of wines and spirits and is compulsory to obtain before selling the first bottle of wine or liquor in Delhi.
‘Annual’ is a misleading term for the license fee in that the new policy ought to be applicable on April 1. If the union budget has been announced on the last date of February since we got independence, irrespective of who ruled the country, it is difficult for a common man to understand why it is postponed by a month at a stretch and at times only 15 days at a time every year. This is unfair and quite stressful for the industry, including the hotel industry. For the last few years it has become fashionable to postpone it as much as possible-this year it has been extended by FOUR months, i.e., one third of the year has gone without announcing the policy for 2015-16.
It’s not that work suffers terribly. Everyone is aware of the system and is prepared for it better than the MCD handling monsoons which are inevitable every year but still there are bottlenecks every year. The Excise Department lets everyone continue doing business-by forcing them to pay for the license fee on a pro-rata basis on for every postponed month. But what seems patently illegal is that the license fee announced later at the convenient date is applicable for the whole year. For instance, the increase in the annual excise license fee of Rs. 1.5 million has an operative window of 9 months only. Effectively it means Rs. 2 million annual-as it will be applicable from August to March. The same drama of monthly extensions is likely to start in March next year.
Registration Fee Doubled
There were already rumours of the registration fee being doubled. All the prayers of the players were futile as the registration fee has been doubled from the existing Rs. 5,000 to 10,000 a year. This means that the existing importers are already on the drawing board deciding on which labels to cut out from the portfolio. New labels would now find it increasingly more difficult to enter the Delhi market and the new importers would find themselves blocked from entering the business. Thus the prices of wines will increase, firstly due to the extra costs of licensing and registration but also because the decreasing competition would mean a tighter control from the existing importers and would mean less competition. Consequently, consumers will have to shell out more.
The marginal importers working with small portfolios and without deep pockets will be out of business sooner or later or will be obliged to add liquor products to their portfolio in order to survive. Ironically, those who started the import business only because of their passion for wine or strong belief that wine is a healthy drink to promote are being forced to add hard liquor even if they don’t like that part of the business. The stories of spurious liquor sales doing the rounds, have been catching momentum. The small honest businessman would find it difficult to survive but most would find it lucrative to add spurious spirits for survival or face extinction.
VAT increase Sword hanging over the head
While the importers are now busy working on the costing sheets and all getting ready to queue up from August 1, they cannot sell till the new registration process is complete. But the proposed hike in VAT from 20-30% that has been doing the grapevine is another blow waiting to hit them. ‘If that happens we have to start all over for getting fresh excise approvals,’ says a well-established importer without willing to be identified.
Price increase on the card
Many of the decade-old importers are reported to be calling it a day. Dealing in smaller numbers of several labels for the select clients, they have been getting sucked into the quagmire for the last few years and this might be the final blow.
A couple of importers that I talked to, on the assurance of anonymity, tell me that the price increase in WSP (wholesale price) would be 8-10%. This would have a multiplier effect; very severe in case of the hotels which are used to pricing the wines at 4-7 times the cost price. They may follow the same formula of cost plus pricing, resulting in an increase of up to 60% of a bottle retail price. They have been already eyeing price increases because the duty free licenses have been recently reduced from 10% to 3% with smaller restaurants being the biggest victims.
With one problem or the other hitting the wine importers, it is convenient to assume that either the government has an implicit policy of discouraging the imports or they want to create a strong trade barrier. Some industry followers even go to the extent of hypothesising that it is a move to implement Article 47 of the Constitution and bring in prohibition in a practical way. But as of now it looks like the politicians and bureaucrats are having their cake and eating it too; the budgets are always focused on higher revenue collection from the sale of liquor and wine.
Silver lining for domestic industry
All the roadblocks for imported wines- be it from FSSAI, Customs or Excise would more likely help the domestic wines though they have problems of their own. Due to various positive factors, the wine culture has been keeping pace over the last 10-15 years and more and more people are drinking wine. Even the doctors prescribe a glass of wine over a glass of whisky. With the quality of Indian wines improving with every passing vintage (Chandon is a prime example of an unexpected boom due to quality resulting from technical collaboration with the principals and branding), it is not unthinkable that more and more people are obliged to switch and this will help the Indian producers making good quality wines.
But right now, it would be interesting to see how many come out of the quagmire, thanks to the excise policy 2015-16 (9 months for the price of 12) coming with effect from August 1.
Subhash Arora
Excise Policy Notification |