The biggest loser will be the Indian consumer and the tourism because the potential benefits that could have accrued to the tourism industry due to Commonwealth games next year would be all but evaporated.
Surprisingly, the hotels and their trade association FHRAI with its strong lobby was able to convince the commerce ministry and get customs duty exemption from which they raked a lot of moolah in the name of tourism promotion till last year when the government put some screws on. But this time they have been watching as bystanders and busy calculating the impact of the increase on their wine list prices.
Some hotels have been talking of passing on the additional increase only to the consumer whereas the more greedy ones are planning to use the multiplier effect to increase the cost proportionately. This means that if the excise duty on certain wine goes up by Rs.600 (actually it would be more for the mid level wines) they will increase the list price by Rs.1500, as allowed by the government recommendation.
But wait! This is not that simple. If the excise goes up by Rs. 600, the importer is investing that much more in the product so he expects a further mark up of say, a reasonable Rs.100. Add the 20% Vat and you have an effective increase of Rs. 2100 <(600+100)*2.5+350)> per bottle due to excise duty alone. Do these hotels really believe that their clientele is only politicians and the segment of bureaucrats who are immune to the price increase? Obviously their finance wizards think so.
The importers are too small and fragmented to unite together and make a whispering cry of revolt. There was reportedly a feeble attempt to get together last week and present a plea to the Honourable Chief minister Ms, Sheila Dixit, The Delhi Finance Minister Mr. Walia and the Excise Commissioner. Even for sending out this one letter they could not come together. Some have privately decided to shut their business while others are planning to add other products like bear or hard liquor including the Indian version or wine accessories.
Where does that leave the hapless consumer? The general feeling is that Indian wines will be the major benefactors. This will happen to some extent but nothing that will make the Indian producers billionaires. The paradigm shift to the lower priced cheaper imports costing less than $ 2-2.5 (The two-buck chuck varieties) would mean only a marginal increase in the retail price of, say Rs.100-200.
Most people who are used to drinking wine in the range of Rs.1000-1200 would rather drink these wines than some of the Indian stuff that tries to pass of as wine. Granted that wines like Sula and Grover and Vintage wines( Reveilo) would benefit from this policy to some extent but the increase would not be phenomenal (probably not more than 15-20%). Not everybody will benefit from this ‘windfall’ either.
Most of the importers I have talked to feel helpless. The hotels also reportedly had a meeting with some government officials through FHRAI. But they need to knock at the doors of the tourism ministry and apprise them of the potential damage this step is going to cause to the tourism industry. One senior excise official is reported to have said that the Indian consumer is not going to give up on his Black label, whatever the price increase, so why is there so much song and dance about it? True, the Indian whisky guzzlers need their daily fix. I was shocked to learn the other day that the Duty Free shop at the Delhi airport stocks about 1950 items. Black Label alone accounts for 40% of the sales! I doubt if our guests for the Commonwealth Games 2010 would be happy carrying a couple of bottles of the Black to drink in their rooms or put in their hip flask to consume at the stadium-surely the sales at the shop will soar!
My guess is that the government is not going to reap much benefit from this policy during this year. The increase in tax will be offset by decrease in sales. We hope to bring out these figures for the benefit of our readers next year even if we have to get the details through the RTI (Right To Information) act and hope we are proven wrong.
In the long term, there is the hope of EU’s complaint in the WTO and the policy of US and other countries joining in, that might force the government to bring down the duties to the saner 150% max level. But as the well known economist John Maynard Keynes once said, ‘in the long term we are all dead.’
We need to have a wine friendly policy, effective yesterday! It should be part of the monitoring of the infrastructure for the Games that the tourism angle should be addressed in totality and monitored. If the Delhi government is serious about tourism (we know the Indian government is Incredibly serious!) , it shall see the reasoning and the logic shall prevail.
PS-We are not directly or indirectly involved in the import, distribution of any wine, so are not affected by the change except as an individual consumer. This call is for the benefit of the consumer and tourism in the state and continued promotion of wine culture throughout India-editor