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Reduce Duties, Roll Back Exemption For Hotels

Kapil Grover of Grover Vineyards makes an eloquent plea for putting some common sense back into the import duty regime for wines. SOURISH BHATTACHARYYA reports on Grover's vision

Indian wine producers are pushing New Delhi to withdraw, in the interests of wine grape growers, the customs duty concession being granted to five-star, but they are being fair and are equally vehement about a substantial reduction in import duties.

Making this point in an interview with , Kapil Grover of the Bangalore-based Grover Vineyards, echoing the view of the European Committee of Wine Companies (CEEV), has demanded that importers should only pay a basic duty of Rs 200 per bulk litre (for bottled and bulk imports) plus 25% of the CIF value. And the countervailing duty (or CVD) must be withdrawn. After this duty structure has been in place for three years, Grover recommends that it be reduced further to Rs 200 per bulk litre plus 10% of the CIF value in the fourth and the fifth years.

Questioning the duty exemption benefit extended to five-star hotels (actually, they have to pay 5% duty on alcoholic beverage imports subject to an overall ceiling of 5% of their foreign exchange earnings), Grover showed how the concession works against the home wine industry. The bulk of the wine consumption in five-star hotels, contrary to popular belief, takes place in the low-priced segment - banquets, pouring brands and giveaways. This segment is so price sensitive that five-star hotels actually find it cheaper to use foreign brands (the current favourites are Jacob's Creek and the iffy Jean-Claude Boisset).

Grover explains how this works against domestic producers. For a Mumbai five-star hotel, the landed price of a bottle of Grover's entry-level wine is Rs 384. As a result of the concession, the landed cost of a bottle of imported wine of similar quality is Rs 272 (previously, it used to be Rs 684). It doesn't require a rocket scientist to guess which wine will get the attention of purchase managers whose understanding of wines is circumscribed by their obsession with price.

Grover makes a convincing case for treating domestic wines as deemed exports. In the example he mentions, the price of the wine will drop dramatically to Rs 198 when it is given 'deemed export' status. The wine pioneer, though, fears this won't be possible because states aren't going to let go of their share of excise revenue.

He recalls how Delhi's Excise Department insisted that he should pay local levies on his wines sold though duty-free shops at the Indira Gandhi International Airport, New Delhi. The demand made the wines uncompetitive and they were out of the duty-free outlets. Domestic wines, as a consequence, are out of the showcases for India's domestic products at a very important location.

Grover suggests a compromise formula. The duty concession can be retained, but only for wines priced over US$8. This will provide domestic producers the level playing field they have been seeking in five-star hotels and the international travellers the pleasure of being served quality wines at affordable prices. The withdrawal of the discriminatory concession will benefit the domestic wine industry and this, in turn, will give the grape farmers of Maharashtra and Karnataka a way out of their present economic plight. For table grapes, a farmer can earn anything from Rs 4 a kilo for Bangalore Blue to Rs 8-10 a kilo for Thomson Seedless. A wine producer, on the other hand, is prepared to pay Rs 35-40 a kilo - and in today's high-demand, low-supply market, a farmer can even make Rs 40 a kilo or more, cash down. It's a major difference even if you account for the much lower yields that the farmers are required to maintain. They can also benefit from an assured market, because wine producers are prepared to sign long-term agreements with them. In contrast, Indian table grapes are subject to the vagaries of the export market. In 2004, for example, Indian table grape exports to EU countries dropped dramatically because residual pesticides, which greatly exceeded prescribed norms, were found on the berries. Today, approximately 1,500 acres are under wine grapes. With the market for domestic wine expected to grow at 30% every year over the next ten years, growing wine grapes can become a profitable business. "In about ten years," says Grover, "if the domestic industry is protected, the land under wine grapes will extend to about 10,000 acres." That's one argument the Congress-led UPA government in New Delhi, which is projecting itself as pro-rural poor, will find very difficult to brush aside.

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