The Hindu Business Line : The barriers are down

The duty relief provided for cheap foreign liquor in Budget 2002 has displeased both Indian and multinational liquor companies, the former because it is detrimental to their interests, the latter because States can still impose other levies.

THE rumour mills are working overtime. Is there a ship carrying cheaper liquor anchored off the Pondicherry coast? If true, the domestic liquor industry's worst fears on low-cost imports will soon be washed ashore. For over two years now, the Indian liquor industry has been lobbying for protection from inexpensive imports. On April 1, 2001, India, under commitment to the WTO, removed quantitative restrictions (QR) on bottled-in-origin (BIO) liquor imports and placed them in the OGL category. But the domestic industry's campaign forced the Centre to continue with 210 per cent basic customs duty and also slap graded additional duty based on CIF pricing of imports. `Lower the price, higher the duty' was the dictum then. The local industry heard the right script from Yashwant Sinha in last year's Budget.

All that has changed with Sinha's fifth Budget. The basic duty is down to 182 per cent - the process of lowering it to the WTO-bound rate of 150 per cent by 2004 has started. The additional duty has been rationalised into two slabs from three earlier. In doing so, Sinha halved additional duty on imports with CIF price below $25 per case to 75 per cent. The additional duty on products priced above $25 per case has been lowered to 50 per cent. The cumulative tax incidence on cheapest imports will be down to 413 per cent from 710 per cent earlier. In comparison, the relief on more expensive products is marginal, down to 340 per cent from 406 per cent. This leaves iconic Scotch whiskies such as Johnnie Walker Black Label and Chivas Regal beyond the reach of most Indians. For instance, JW Black Label's price may hover around Rs 3,400 in Mumbai.

Sinha's moves have failed to impress both Indian and multinational liquor companies. Says Vijay Rekhi, President (Spirits Division), UB Group, "The Budget is likely to encourage and open the floodgates for cheap imports of alcoholic beverages, which is detrimental to the local industry. The reduction of additional duty (also called countervailing duties) by half on cheaper imports from 150 to 75 per cent was unexpected." Deepak Roy, President (India, South Asia & Baltic), United Distillers & Vintners (UDV), remained equally dissatisfied. "The cut in additional duty is not good enough," he says. "What is the point in having this countervailing tariff when States are allowed to levy special fees and other levies on liquor imports?" he questions. Roy says only a marginal tax relief for premium imports would mean that most of UDV's main brands remain unviable in the Indian market.

As both domestic and multinational lobbies continue their slugfest, the Indian consumer stands to gain more, not necessarily from topline international brands. There is an increasing chance of him picking up lesser-known brands from retail shelves. Scotch brands such as Highland Queen or Macnair's may now compete with local brands priced in the prestige and premium segments of the Indian Made Foreign Liquor (IMFL) market. Cheap Scotch whiskies such as John Barr, Northern Scott and Scot Bard, priced between $7.5 and $20 per case of 12 bottles in their country of origin, may cost only between Rs 220 and Rs 480, even after levies. Another interesting trend will be the emergence of imported ad-mix brands. A few neighbouring markets, for instance, Thailand, have already been swamped by imported ad-mix brands. The relatively high growth rate for white spirits in urban India may also invite imports of inexpensive vodkas from Eastern Europe.

However, it is crucial to note that most Indian States remain closed to BIO imports even though QRs were lifted a year ago. Only 12 out of 31 States have laid out policy framework to allow imports into their markets. So even if shipments of cheaper spirits swamp the domestic market, it may take a while for many Indians to buy them off the shelves.

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