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Lower Wine Duties may soon be a Mirage

Posted: Friday, 09 Saturday 2013 12:12

Lower Wine Duties may soon be a Mirage

Feb 09: While the whole of EU wine producing community is setting sights wistfully to the signing of FTA between India and EU, that will help lowering of duties, it might soon become a mirage if it is not signed during the next few months with the window of opportunity closing fast, according to the EU Ambassador to India, as reported by media.

Photo By:: Adil Arora

delWine has been concerned about the pace at which the talks have been going and has maintained for well over a year that with the general elections in India slated for 2014, it would be highly unlikely for our government to put their signature on the accord when we are close to the elections as it may be reluctant to touch the sensibilities of the anti-alcohol lobby and a big chunk of their vote bank. The government’s wariness on pushing for such issues as recent liberalization of FDI in Retail is a glaring example.

The EU Ambassador to India Joao Cravinho informed the media on Thursday what he had shared with delWine 2 months ago without divulging details but one could gather from his lips. He warned of a closing window of opportunity because of the general elections being due next year. In fact, there is a growing pressure from the opposition parties who claim the election could be as early as September this year. The coalition UPA government with Congress majority is reluctant to take any decisions that may be termed too confrontational at election time.

As early as November 2011 when the Indian government was showing outward optimism for an imminent Agreement, Subhash Arora, President of the Indian Wine Academy had shared his apprehension at an international platform, with a learned speaker from the European Union Parliament at the World Wine Symposium held at Villa d’Este in Italy. He had expressed the view that the elections were fast approaching in India and that if the accord was not reached by June 2013, the FTA discussions might have to wait till after the election.

It is a moot point whether she even remembered the warning or passed on the message to Brussels but India has been reportedly dragging its feet with the hope of extracting as many concessions as possible. Apparently the two sides have still not reached an agreement despite TOI announcing over a couple of months ago that an Accord had been reached between the two sides. During the interview with Mr Cravinho, he had rubbished the report.

TOI has now reversed its stand based on the Ambassador’s clear message.  "Elections in India are on the horizon. So we have a closing window of opportunity," said EU ambassador to India Joao Cravinho. India and the EU are also still far from agreeing on key issues like autos, wines and most importantly, the services sector. The FTA is being negotiated for the past five years now and has missed several deadlines,’ read the report yesterday in TOI.

Cravinho said a lot of progress had been made in the past 18 months but differences on the auto, wine and spirits, and services sectors remain to be resolved. Commerce minister Anand Sharma presented a seemingly more optimistic view last month, telling an Indian industry meeting that the accord was on the verge of completion. However, he agreed diplomatically that the pact was within reach.

The Ambassador did not delve on the possible excise duty hikes that might be imposed by state governments on wines and spirits in case the duties are reduced. According to the Indian constitution, States have been authorized to form their own duty and tax structure in order to reduce the alcohol consumption but these have become cash cows for them and due to lesser elasticity of demand, especially for cigarettes and spirits, the governments are known to be scissor happy to cut the consumer pockets in this segment.

Mr. Cravinho is reluctant to discuss the subject as he feels it is an internal matter for the government to settle. Government is hoping to implement the GST in all the States  and has apparently reached an accord with many States on the issue. Deadline for making the GST operational is March 2014 - at least in the States where the agreement is reached.

The discussion on auto imports brings out an interesting point. Cravinho said EU would like to see zero tariffs in the auto sector on both sides. At the moment, trade is overly imbalanced. There are 240,000 cars exported from India to Europe in a year with only 6,000-7,000 imported, he added, although most of the cars imported are the manufactured products of Korean and Japanese companies with the manufacturing base in India for their market in these countries,

This fact alone reflects highly on the technology absorption capability of Indians. When the auto reforms took place in the mid '80s, the India auto industry and the likes of Ambassador and Padmini manufacturers opposed the move fiercely, advancing the logic that the domestic industry would be ruined. Those in the industry who shifted gears on time are flourishing today because of foreign investments and technical collaborations. Same logic may well apply to the wine industry. With increasing imports, especially of high quality wines, the producers will definitely work harder to compete with them and will even go the extent of acquiring the latest technologies, in the process improving the quality level of their wines to a much higher level and exporting much larger volumes.

But at present, they are busy thwarting the move by the government to decrease the duties. On the other hand State governments including the Congress controlled Delhi, are thriving by making procedures even more complex, and thus adding to the costs.

With EU soon to start agreement talks with the US and Japan, both of which are more important to them due to the sluggish economies, their interest in the India-EU Agreement might start waning due to time and resource constraint, and with the passing of time the prospects of reduction of duties- at least import duties, might become like a mirage.

For a detailed recent article, please visit Commentary: Mixed Signals of Duty Reduction on EU Wines

Subhash Arora

Tags: FDI in Retail,World Wine Symposium

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