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Blog: We shall Overcome

Posted: Tuesday, 17 April 2012 15:59

Blog: We shall Overcome

Apr 17: An article that I wrote recently for an international magazine about the structure of market for imported wines in India, got the editors in a tizzy as it had such overtones of negativity that it made them wonder if it would scare away the producers. I always feel I must project a true picture with a hope that things are bound to improve although it will take an unknown amount of time before they get better

In every wine policy discussion in India, the highlight is the high taxation that is a constraint in the development of wine culture. True, the customs duty is high-160% of the assessable value, though soon to come down marginally to 150%, but that is only part story. The excise duties and the procedures are the bigger monsters to be faced.

We shall overcome

But we shall overcome the difficulties.  I believe the things will turn around and eventually move in the right direction.  But like a good homeopath doctor or a quack who normally treats a chronic patient, warns him that his health may  get worse before getting better, the wine market may get tougher before it becomes easier-except that in this case government might not be the good doctor.

Due to a lack of understanding of the wine culture, the scotch- soaked or teetotaler decision makers alike  are constantly experimenting and tinkering and tweaking the ‘policy and effects’ and the result on the state revenues.  Policy is modified every year causing uncertainty in the market but. But one cannot blame the government for trying to plug the loopholes that are left every-time a new policy is evolved.

Constitutional Ogre

The founder fathers of our Constitution are perhaps shedding tears in heaven seeing their ideals trivialized. Section 47 was inserted in the Indian Constitution to encourage States to introduce prohibition (buzzword in late 1940s after the US repealed it in the previous decade) because of the ill-effects of alcohol. They gave sweeping powers to states to establish the sales and distribution policy that would be restrictive to alcohol. But today, the decision makers see wine and alcohol only as the cash cows, to collect ever-increasing amount of taxes and curtailing it is farthest from their mind.

A case in point is Haryana- and Delhi. Haryana has been a progressive state in that it evolved policies a few years ago to break the cartels and liquor mafias that came up during the 19-month prohibition period of 1996-98. As a step in achieving those objectives, there was a whole sale license to be obtained. The retail shops in different localities are earmarked and the retail license L-2 is given on annual basis to the highest bidder against sealed bids.

The L1-Bf (for imported alcohol) license fees have been increased from Rs.0.5 million to Rs.1.5 million this month. It was shocking to learn barely 3 years ago that the L-2 for a retail shop in a posh area bagged over Rs. 10 million. This year it crossed Rs.40 million-for not one but several outlets in Gurgaon!  No one has been able to explain logically, what happens to the stocks and the real estate where the licensee has worked for a year and does not get it in the subsequent year. So the informal cartels have been formed with the licenses being bought and sold between the bidders, for consideration. So you may see the operations in a retail shop continuing without disruption not knowing the deal struck between the previous and the current licensee.

One wonders whether the government gives a second thought to how this heavy investment is going to be recovered by the licensee, so long as their objective of garnering higher revenues is achieved.

Similarly, the system of label registration at Rs. 10,000 has been introduced-ostensibly to help  small importers but the logic of it fails me. It becomes even more complex when you know that every wholesaler must register it separately. For instance, there are four active distributors in Gurgaon through whom most importers distribute their products-each selling to his own customer. To continue the same business, one has to now register the label through each of them-costing Rs.40, 000 a year, an impossible task for the little guy who sells perhaps 20 cases a year of a particular label. His business in Haryana is doomed now.

Looking at it from Haryana government’s point of view, it has some logic. The excise department  would like to stop the leakages that result in revenue loss to the state. Keeping the distress caused to the small guys, it is likely that the clause would be modified in the next year’s policy. This trial and error process will continue for several years.

It is generally understood in the trade that the higher taxes are more easily borne by the liquor industry, howsoever unjustified they may appear. The key issue is that the government has not yet fully comprehended the business of wine-which is an entirely new form of business. On one hand, it spoils with improper storage and most wines go ‘bad’ after a certain period. However, several wines get better with ageing and need to be stored-in ideal conditions. When a common consumer does not appreciate how can one expect the decision makers to be savvy about it-as a group?

As we go along, the decision makers are bound to understand that wine has to be segregated category and that more consumption and awareness will lead to a happier and less alcohol environment and that lower and rationalized taxation would mean more revenues. Note that nowhere has the issue of discouraging the alcohol consumption has figured.

Delhi has been increasing the wholesale license fee and the vend fees many fold for expensive wines which used to be a flat rate of Rs.150 a bottle earlier;   It introduced hologram system a few years ago. But it has been making efforts to streamline the duty structure, with no sign of reverting to the old system. Licenses for department stores have now  been allowed. One can see choicest of wines and liquor at the shelves of several new stores. Special license is available to sell wines only at the restaurants.  Separate excise warehouse was made compulsory lasted year; nobody can question the appropriateness of this decision insofar as it is meant to maintain a tighter control.

Undoubtedly, excise procedures are at pain in several body parts. A wine exporter from UK rues that his wines from UK go through 14 points of excise to make a $4.5 wine to cost $39 in the hands of the customer!  He has not clarified if it includes speed money, grease money, hush money, petrol money, food money or any such allied expenses!

But one must appreciate that the department has powers whereby they can harass anybody and they are but humans only. The excise department is well- oiled machinery –unfortunately wine is not a central excise subject but a state subject. Therefore, one will have to keep on educating different quarters and lobby for rationalization. I believe it is not an impossible task, and We shall overcome.

Subhash Arora



Praveen Bali Says:

Thank you and its very appropriate description. We import wines from Georgia and go thru same web . Wines need to be separated from hard liquor , as first step , before any productive reforms be proposed to Govt.

Posted @ April 18, 2012 14:15


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