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Delhi Wine Club

Posted: Thursday, July 23 2009. 14:18

Editorial : The Whining Indian Wine Industry

The additional 5% VAT on wines imposed by the Maharashtra Government earlier this month, raising it   to 25%, has affected the wine sale in the state tremendously according to industry stalwarts like Mr. Sham Chougule, Chairman of Indage Vintners and  the recently constituted Indian Grape Processing Board claiming that sales volumes have fallen 60% since September last year.

Addressing the 15-member Board, he said reportedly, "Small wineries are in a particularly bad shape and they will not be able to crush any grapes in the 2009-10 season or they could crush but would not be able to pay contracted rates." Most of the wineries in Nashik have threatened to stop buying grapes from farmers during the next grape season as they have accumulated stock of unsold wines- due to the hike in VAT.

The wineries have naturally asked for the roll back to 20%. In fact, when the excise policy was initiated in 2001, it had assumed the sales tax of 4%. But since the VAT was enforced after the policy, wines started attracting a VAT of 20% as per the state VAT norms, which is already being protested by the producers.

While the latest increase could be termed arbitrary and unjust because the department had given an implicit assurance that the sales tax would remain at 4%, by no stretch of imagination can one surmise that the drop has been 60% since last September because of VAT. In any case, this change was applicable only recently. Besides, the increase of 5% implies an increase of Rs.20-30 a bottle of Indian wine which can be grudgingly absorbed by any producer/retailer or the consumer. The imported wines have suffered even ten times or more due to this increase.

Interestingly, no one from the industry cried foul, when the excise duty was raised to 200% in Maharashtra on imported wines. While most believe that the Indian wine lobby was instrumental in getting the import duties jacked up, the people who are objective and in the know are also confident that the Indian wine industry is suffering because of only marginal improvement in the quality, with most of the new wineries not producing up to the mark beverage.

There has been a general degradation the quality, barring a few exceptions. Most producers have started looking at it as a commodity with the objective of maximizing their profits. They have been filling up the tanks with juice without bothering about the available market of their products. Some have gone to the extent of over-declaring their production and then showing dummy sales, with the problems of stocks and their woes ballooning.

Too high yields, harvesting unripe grapes, mixing of non wine grapes making the costs lower, mixing imported cheap bulk wine in the blend to reduce costs are known and accepted techniques that would never bring the quality up. The process of putting the wineries on the block has already started with more than a couple looking for a bailout.

Most of the foreign winemakers, viticulturists and experts coming from to Maharashtra from overseas complain about the lack of scruples in the farmers who constantly try to increase the yield to make more profit. Many times a viticulturist may reject a lot not found up to the specifications. Due to the extreme shortage of grapes in the last 3-4 years, the fruit is picked up immediately by another vintner who is short of grapes and is waiting in the wings for such an opportunity. At times, the winery rep goes to check out the grapes and tells the contracted farmer to hold on for 2-3 days as the fruit is not fully ripe. During this time, someone else comes and buys it, on ‘as is’ basis as he pays a higher price.. Naturally, it is the wine quality that suffers.

Fortunately, the wineries have a sugar-daddy in the Agriculture minister Sharad Pawar who has asked the Maharashtra Government to reduce value-added tax (VAT) on wine back to 4% from the current 25%. Pawar, whose family has a major stake in the wine industry including the UB group- owned Four Season's Winery, had even rightly suggested that wine should be treated as food product and there should be a 10-year tax holiday for the industry. It was at Pawar's instructions two years ago that the state government had allowed wine to be sold at shopping malls in Maharashtra.

In the earlier days there were no benchmarks for wine, at least as far as the acceptability was concerned. Riviera sold as a premium wine when it is in fact a table wine made from undeclared or unknown grapes. It had created a big brand for itself. But today, it is known as a ‘one-for-one’ brand, meaning that most of the times a buy-one-get-one-free bottle is on offer- at least to the dealer. This has started a chain reaction making many of the new comers like Kinwa obliged into giving a similar offer, and putting a pressure on the existing players. It is doubtful that 5% VAT has made any difference to the wine scenario.

The main issue has been the recession. When Indage optimistically informed delWine in September last year, that they were not affected by the recession as it had never affected the consumption of alcohol in India, Rajeev Samant of Sula had sounded the warning bells and had informed delWine that they were cutting down on production and informing the farmers and the winery collaborators about the bad time ahead for the current season. This is a matter of record in a previous delWine edition.

While delWine totally supports the concept of wine to be treated as a food product and the demand to bring the VAT down to 4% throughout India for all the wines, we also believe that whining about the 5% increase will cut ice with no one- distributor and consumer included. Just as Maruti got us freedom from Ambassadors and Padminis and cleared grounds for Optras, Corollas and Skodas, the industry should stop whining and  always seeking protective measures but work towards increasing consumption and expanding the total wine market  and learn to live in an environment where each wine label may find its niche based on the quality-price relationship.

Cav. Subhash Arora


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