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Delhi Wine Club

Posted: Tuesday, October 20 2009. 10:02

Blog: EU Pump up the Volume

Many importers, foreign producers and consumers ask me everyday whether the excise duties will be rolled back in Delhi. I assure them they will be rolled back before the next fiscal year in April, not because we have been able to make them see the reason, but due to the mounting pressure from EU-our inadvertent allies.

Predicting such governmental policies is like the stock market except that no one  has the insider information- the lawmakers (politicians in this case) are as confused as a laymen. There are bears and bulls of course- there are bears like the wine importers who may eventually tart handling other products to survive or change the commodity and get into spirits, food products or wine related products.

I am a rare bull in the field full of bears and once can’t blame them either; the bureaucrats will try to prove that the excise duty collection has gone up with increased rates-even though there has been a fall of around 40% in the sales, and that they have helped decrease alcohol consumption too.

So why am I so bullish? During the period of two years that Maharashtra had the excise duties at 200% I was quite critical of the otherwise very pro-active government. And I always said that they must bring the duties down-which they did a couple of months ago, and helped revive the stifled market about to choke to death.

Did the common sense prevail over them? Did they see our reasoning? Let us not kid ourselves. It was the pressure from EU through WTO complaint that made the Indian government take a note of it and they were able to put pressure on the Maharashtra government to relent. Even though, the duties are not zero as they ought to be, no one seems to mind the extra burden of around Rs. 300 a bottle today.

Delhi, emboldened by the Maharashtra policy, announced a massive excise duty increase which has been choking this market (the duty free on trade market has been partially spared the massacre-but that is another story!). My logic is, that the central government has been able to pressurise Maharashtra, with a real threat of sanctions on their head. In Delhi where the Congress government has a clear majority, it should not have any problem in convincing the local government to take appropriate action to avoid the adverse action by WTO.

They may sound like empty threats to the bureaucrats and concerned leadership but EU renewed its warning last week and said that it would go to WTO if the taxes are not rationalised. To a common, liberated international traveller 150% customs duty may sound too high, but remember when the WTO Agreement was signed in the 1990, there was a trickle of imported wines against special licenses and the total duties were as high as 650%. So 150% was a decently low level.

Even though a cap of 100% customs duties which was in force till 2007 would make a lot more sense, looking at the today’s world and the duties imposed by other nations in the region ( Hong Kong has nil, China has about 45% including the customs, excise and VAT), this will have to come through internal lobbies. But anything beyond 150% is certainly beyond the agreed figures by the sovereign government and EU must continue to put pressure till they are able to achieve this target. They renewed the threat in a recent visit of journalists to the EU headquarters.

It is only a matter of time and with continued pressure that the expected results will come. (Don’t worry, Goa and Tamil Nadu will also get the respite). To our readers, I request finding holes in my theory... but to EU we’d say,

Pump up the Volume!

Subhash Arora


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