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 Ironically, the World Trade Organisation, which had been pressuring the government to bring duties down, also became the root cause of
the problems. The customs duty had been 100% until last July. But additional customs duty (ACD) was also being charged on imported wines, making it effectively about 264% - when the permissible limit, according to an agreement with the WTO, was 150%.
Last year the government withdrew the special duties, but increased the customs duty to 150%. The state of Maharashtra added a special excise duty of 200% on the CIF value. Later, the state of Goa increased label registration charges. Karnataka also increased the duties by about $5.75 a bottle. Last month, Delhi announced a sales price based excise duty that comes close to that in Maharashtra. Mumbai, Delhi, Bangalore and Goa are the major markets, accounting for more than 80% of Indian consumption. They have been negatively impacted by these state government policies.
India is predominantly a hard liquor and beer country, where about 140m cases (12 x 750 mL) of whisky and other spirits are consumed every year, along with a similar number of cases of beer. Over 200m cases of unaccounted and country liquor are also sold. Wine is a very small portion of this market, with about 1.6m cases of wine – including 220,000 cases of imported wine – being the total consumption. Last year saw a stagnation in demand for Indian wines, while imported wine sales dropped to about 200,000 cases.
The paperwork has also become more complex. States changed their policy mid-year, causing uncertainty
among the importers, hotels and restaurants. Last year saw Maharashtra’s wine business suspended for almost six months; Bangalore had a similar problem for three months this year; Delhi could not get wines for a month after the new policy came out. The governments control the distribution by not issuing the Transfer Permit (TP), a document issued by the excise department, without which no movement of wine is allowed. States like Chennai suspended the issuance of TP for months without giving reasons.
The recession also took its toll last year. The 26/11 terrorist attack in Mumbai brought the hotel business
to a halt. Stung by inventories and shrinking sales, hotels decided to liquidate existing stocks without any
fresh buying. A five star hotel was selling Guidalberto 2004 from Sassicaia at the banquet price of Rs.1500 ($31.18), a third of its restaurant price of over Rs. 4000 ($84.45). The net impact of the new policies has
hit fine wines the most. The effect on cheap wines costing $2.85-4.85 ex-cellar has been minimal in
Maharashtra and Delhi, forcing the importers, retailers and most hoteliers to downgrade their portfolios.
So what does it mean for the foreign producers? Undoubtedly, mid and high end wines are negatively
affected. Importers are downsizing their portfolios and going for cheaper value for money wines, even
if it means importing from newer regions like Spain and Portugal, or taking cheaper wines from established
producers. Fortunately, the increase in wine demand and consumption is visible throughout India. However, although the big beneficiaries of the newly discovered penchant for wine have been the Indian producers, they are also facing quality and financial problems.
Indage Vintners had made investments in foreign wineries and got into financial trouble. They have been unable to pay salaries for the last several months. Grover Vineyards had serious quality problems last year. Sula reduced grape purchases from farmers and cancelled purchases. Several wineries have tanks full of wines but no market. ‘Buy one-get one free’ schemes are common among several less known quality brands. Chateau d’Ori, a quality producer, had to cut down its production budget by over 40% and is facing financial crisis.
The State governments are encouraging wine consumption and production. Karnataka has recently allowed wine in supermarkets, though Delhi has not relented. Wine bars and boutiques are being allowed at lower license fees. Unfortunately, most governments still do not de-link wine from hard liquor. The wine industry is considered a cash cow for taxation. A majority of the policy makers treat imported wine as a luxury product with low elasticity of demand.
There are signs of lower taxation, especially with Maharashtra ready to reduce the excise duty to a slab
rate which works out to around $4.31 a bottle, or about 5% of the total sales price, resulting in a big
relief. This decrease may force other states, including Delhi, to reduce taxes as well. However, it is safe to
assume that the wine market will soon bounce back to the 25-30% annual growth track, though in the
short term, the more expensive wines will find it tougher to sell. The Commonwealth Games being held
in Delhi in October 2010 will keep the government and hotels on their toes to boost tourism. This may not
only help to keep the wine prices under check but may also boost the sale of medium-priced wines.
Cav. Subhash Arora
The above article has been published in the August issue of Meininger’s Wine Business International, released last Friday at the MundusVini wine competition venue in Neustadt and has been re-printed with permission from the Editor\-in- Chief, Ms. Felicity Carter. Subhash Arora is the India Correspondent of the international magazine published bi-monthly in Germany for global circulation.
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