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Posted: Monday, 18 May 2020 14:20

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Imported Wine Industry facing Disaster in India

May 16: Taking the speech of PM Narendra Modi last to go local very seriously, ministries are already considering a ban on the sale of imported wines with Central Armed Police Forces canteens already announcing the ban from June 1 and CSD under the Defence Ministry suspending fresh purchase, putting the wine and spirits importers in a limbo midway, but if the word reaches the Commerce Ministry which might ban the imports of wine and spirits, it will spell tsunami for the industry, writes Subhash Arora who feels that this kind of protectionism might push India back by 20 years

The Union Home Minister, Amit Shah announced last Wednesday that all canteens of the Central Armed Police Forces (CAPFs), including CRPF and BSF will sell only domestic products from June 1 to 10 lakh members. He also tweeted that this was after Prime Minister Narendra Modi's message for adopting local products and becoming self-reliant. All CAPF canteens come under Home Ministry, and sell products worth Rs. 2,800 crores (Rs. 28 billion) annually including wine and liquor.

The Canteen Stores Department (CSD) of the defence ministry, which runs over 5,000 stores across the country with an annual turnover in excess of Rs 16,000 crore (Rs. 160 billion), already has a majority of products that are Indian made. It has put on hold all purchases including the existing orders, awaiting clearer instructions from the ministry.

A decision to stop imported goods totally could help weed out Chinese-made items that have found their way into CSD stores over the past few years. A report by the Comptroller and Auditor General (CAG) in 2017 had found that even regular household items that are easily available in the market have occasionally been replaced by Chinese products, reports Defence Aviation Post.

The Ministry claims that if a decision is taken to exclude imported items in CSD canteens, it would impact only high-end alcohol sold at the stores and some household items that are available. Lest, the Honourable Minister forget, one often hears in their passionate political speeches how the soldiers and officers of the Indian defence forces are defending their country with their lives. Please do not take away their right to slightly indulge at the end of the day.

Of course, the final nail on the head could come from the Minister of Commerce and Industry, Piyush Goyal who could announce that no more imports of wine and spirits would be allowed, thus rescinding the order of 2001 that brought global wine and spirits brands and push India also to a path of improving quality. Fortunately, he is one of the most progressive thinkers in the current regime and would not like to rock the boat, just for the ego.

Most importers are not losing sleep over it either-yet. They hope that the Home and Defence Ministries would take a positive approach. They believe that the import industry is so small (check out the spirits section of any duty free shop in India and the labels available with the staff, nudging you to buy any imported whiskey and you might be surprised though) that the government would not be that myopic and mean.

After all, they make serious money on the customs duty besides the excise duty and VAT, they claim. These are all parts of the ups and downs that the industry has been facing for the last 20 years. In the same breath these importers also bring out several positives of allowing the imports. But one stroke of the pen could spell disaster for all of them; and the consumer who has barely started enjoying the lifestyle and healthy drink-wine.  

Rome was not build in a day   

Rome wasn’t built in a day- neither was the fledgling imported wine industry which is still struggling to survive after 20 years. Wine and Liquor imports were freely allowed by a government notification in 2001. The duties were reduced- though still higher than those allowed by WTO-so later realigned to the present all- inclusive 150% which is a meaty source of tax revenues. Hotels were allowed duty-free licenses up to 5% of their export earnings, later increased to 10%. But ostensibly due to misuse by a majority of the hotels, the amount has been reduced to 3% and most hotels have not even been able to get them renewed and are paying full duties on all their imports.

Bumpy ride for importers

The journey from 2001-20 has been full of road bumps. Almost every month the importers have had to go through new challenges, many unable to bear the crippling losses going under. There are currently under 100 wine importers with about 50 being active including occasional/specialist importers; almost the same number having closed down due to non-sustainability and losses. Less than 30 are significant wine importers, including MNCs like Pernod Ricard and Moet Hennessy. Sula and Fratelli are the only two producers who are also importers- Fratelli not so significant or serious as Sula which had started importers after imports had been ‘freed’ in 2001.

It is also significant that a majority of importers entered the business because of their passion for wines. Barring a couple of importers which are making insignificant profits, others have been regularly investing and losing more money hoping for the acche din aayenge. Under these circumstances, it would be unfair to the importers who have invested their blood and tears and borrowed big amounts of money to try and make the business grow.

Helping improve Indian quality

Probably the government has yet to appreciate that the quality of Indian wines has seen a marked improvement during the last decade, not only because of competition from their fellow producers but that from the imported products, inspiring them to produce better. They are well aware, that the Indian wines have to compete with the imported wines that sell at one-fourth the price, and they can sustain only because there are heavy taxes and other expenses at every step of the way. Those with positive minds have taken it among themselves to improve the quality constantly by innovating viticulture and winemaking processes.  

Last, but not the least, the government needs to appreciate that the world would never be in a situation where every country is in a cocoon. Cheap Chinese products notwithstanding, the quality has to get better and the costs competitive in the world market. In any case, wine is a product that knows no boundaries. Each country, region has its own terroir. Many wine drinkers realise the difference between Maharashtra and Karnataka wines. Once the price/quality ratio becomes international, there would be as much opportunity of earning money in exports as collecting on imports high revenues that is the norm.

One hopes that, looking even beyond the interest of the small businesses who have toiled and invested a lot of money in imported wine business, the government would focus on the cheap Chinese market which has flooded the market so much that the flights to China have more Indian small businessmen in the flights than those from India to Gulf countries.  

Unless, the government wants the modern India to go back 20 years!

Subhash Arora

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