Over the last few years we’ve been reading about how wine sales in India are going great guns. India was supposed to be the fastest-growing wine market in the world. Despite all the problems and constraints faced by both domestic producers and importers, volumes were growing at 25% plus annually, and total volumes were forecast to increase from 1.2 million cases in 2007/08 to five million cases in five years and 50 m cases in 20. Poppycock, says Alok Chandra who contends that the current state of affairs is simply not acceptable.
Wine volumes in India will at best be stagnant or possibly decline in 2009. Sales of imported wines will certainly decline from the 200,000 cases of 2008, while domestic wines will perhaps grow marginally, by only 5% or so.
The industry here has been hit by a triple whammy: a slowdown in consumer spending due to the worldwide economic recession, the impact of the Mumbai terror attacks on travel and tourism, and the weakening Indian rupee (which has depreciated from Rs 40 to Rs 50 per US$ in the last six months).
On top of that, the authorities in key markets seem to be doing everything they can to kill the industry’s growth by increasing taxes and constraints on wines, at a time when what is needed is for them to actually reduce taxes and ease the restrictions. It’s probably not wilful malice, merely bureaucratic ineptitude and callous official insensitivity to wine.
Alcoholic beverages are a state subject in India, and each state has its own rules and regulations, duties and taxes. Wines are almost entirely an urban phenomenon, with over 90% of consumption confined to the five metro cities of Delhi Mumbai, Kolkata, Chennai and Bangalore, a few state capitals, Goa and where ever luxury hotels are located. These islands of affluence constitute our very own Wine Archipelago. It’s like operating in 30 different countries. The problem is that since volumes are small, overheads per bottle for wine vendors are much higher than for companies marketing spirits or beer.
Wine sales are as yet miniscule when compared to spirits (200 m cases) or beer (175 m cases) which is perhaps why most central and state-level authorities give short shrift to this product, and subject wines to the same controls and constraints applicable to spirits and beer.
The problem actually started when, under pressure from the WTO, the union government in July 2007 removed the multi-tier Additional Customs Duty on wines and spirits and raised the basic customs duty (on both bottled and bulk wines) from 100% to 150%. At the same time the notification allowed state governments to impose additional levies equivalent to the taxes charged on domestic wines.
In short order, Maharashtra state raised their excise duty on imported wines, first to 150% in July 2007, and then to 200% in July 2008, of the Assessable Value, which is the same as that imposed on Indian wines from outside the state. However, when combined with the 150% customs duties (not considered as a part of ‘cost’) and a 4-times cap on the maximum selling price (MRP) to consumers the sale of imported wines at retail shops has become uneconomical. So imported wines are now only available in bars, restaurants and hotels (where the MPR restriction does not apply).
Wine producers in Maharashtra benefited from this short-term policy as they were exempted from excise duties under the 2001 Maharashtra Grape Processing Policy and therefore not affected. Little did they realize that they would get their come-uppance within a year when they would be hit by rising taxes in both Karnataka and Goa as well as faced with the prospect of paying duties retrospectively from 2001 by a court judgment.
Karnataka had the lowest duties on wines in India, charging the same duties for both imported and domestic wines, regardless of where the wines were being produced. Then came the new Wine Policy, which sought to stimulate wine production within the state. Local wineries (read Grover) were aggrieved by Maharashtra’s discriminatory taxation on wine from Karnataka, and so lobbied the Karnataka Wine Board to push for retaliatory taxes on wines from outside to ‘protect’ local wineries from outsiders.
So, effective October 2008, the state government raised taxes on all wines from outside Karnataka (including imported wines) by Rs 300 per litre. The direct impact of this was reflected in wine sales, which declined by 55% for the quarter ending December 2008 as against the same period in 2007.
Goa was known to be the place for the cheapest wines and spirits – low taxes, lightly applied, meant that there was a wide variety of brands to choose from. Goa was also home to Indian port, ranging from quite authentic stuff made by Vinicola to concoctions made by mixing neutral spirits, flavours, colour and a bit of grape juice. However, sales of Goan ports were wiped out in 2001 when Maharashtra implemented its Wine Policy, and suffered the same fate this year in Karnataka with the state’s new tax regime.
Goa raised taxes on wines in April 2008, doubling the import fee on imported wines to Rs 100 per litre “in order to protect the interests of the local industry”, ie, wineries importing bulk wine from Portugal and bottling it locally. In October 2008 taxes on wines in Goa were again raised, this time on a sliding scale (based on the MRP) going up to Rs. 600/litre for wines priced above Rs 3,750 per bottle. So Goa, too, has joined the list of basket cases insofar as wine is concerned.
Delhi is the only major wine market to have resisted raising taxes on imported wine from the existing Rs 200 per litre to what had been proposed at 25% of the MRP. Thank heavens and a bit of adroit lobbying with the Chief Minister Sheila Dixit, who must be the only politician who has listened to reason on the subject.
Not that wine importers and vendors are entirely happy: the licence fee for operating in Delhi has been raised from Rs 200,000 to Rs 500,000 per annum from 2007/08 – a burden which most small winemakers or importers are unable to bear.
The litany of woes goes on and on. In state after state the powers-that-be seem to be meteing out step-motherly treatment to wine (and in particular imported wine) in sharp contrast to what’s happening with imported spirits.
It’s time to ask, “Where is the wine industry in India headed?”
Downwards, it would seem, since state government policies are geared to allowing only those with very deep pockets to survive. I, for one, do not expect any favourable changes when state or union budgets are announced this March/April. Domestic producers have confined themselves to selling wine largely within their own state, which is not enough to sustain a business, so some will go bust. Importers will reduce their exposure and wine portfolios, and perhaps some will also just shut shop.
Wake up, National Wine Board and state authorities – this is simply not acceptable.