There is a particular group celebrating this week’s signing of India’s free trade agreement (FTA) by uncorking their favourite tipple. For India’s sizeable alcoholic beverage-loving crowd (a market estimated at nearly ₹5 lakh crore), the FTA has promised their favourite wines and whiskies at lower prices.
While the UK FTA—as well as the Economic Cooperation and Trade Agreement (ECTA) India signed with Australia back in 2022—have provisions for reducing tariffs on alcobevs, the practical reality is that it will not amount to much of a lower price.
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The reason is a compound mix of clauses in the trade agreements, as well as the multi-layered system of taxes that Indian states happily slap on these items.
Take, for example, the ECTA with the Aussies. While the premise is that import duties on Australian wines like Jacob’s Creek and the like will drop—in some cases as low as 25 per cent from a pre-deal high of 150 per cent—the reality is a tad different.
To start with, both the UK and Australia deals plan to reduce the tariffs only in a phased manner over a period of ten years.
On top of it, CIF (or cost, insurance and freight), an international trade term used to denote the actual expense incurred in the trading of the said product, also makes a difference. For pricier Australian wines (costing more than around ₹1,200), tariffs will be reduced from 150 per cent to 75 per cent, and then cut 5 per cent every year until they reach 25 per cent.
In case of bottles priced between ₹400 and ₹1,200, tariffs will drop from 150 per cent down to 100 per cent, and then will go down every year but only till 50 per cent. The CIF on cheaper wines will stay at 150 per cent throughout.
Similarly, the India UK FTA aims at reducing duties on Scotch whisky and English gin only over a period of 10 years. While the sky-high 150 per cent present duty on foreign liquor will be immediately brought down to 75 per cent, the remaining graded reduction to 40 per cent will also happen only over the next 10 years.
While the UK reduction also applies to bulk imports used for blending into India’s own IMFL whiskies (which may appear as if even local brand prices should come down), the reason why prices will not really go down dramatically is simple: the larger part of the cost of an alcohol bottle is the massive amount of excise duty, value added tax and additional cess (in many cases) that revenue-hungry state governments impose on alcohol.
This ranges from as much as around 80 per cent in the state of Karnataka to the lowest that is around 45 per cent in Haryana.
This means a scotch whisky bottle originally costing ₹1,000 rupees at the distillery would have instantly become costlier at ₹2,500 because of the 150 per cent original duty.
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Then pile on the state excise duties, VAT and surcharges, as well as distributor and dealer margins (some states like Maharashtra have additional VAT depending on where the alcohol is served, for example), and you are looking at no less than around ₹4,000, for something that originally cost one-fourth of that.
This means the lowering of import duties would barely make a dent of less than 30 per cent in most cases on the price of your favourite phoren tipple.
That is, of course, provided our greedy middlemen, the importers, distributors and liquor marketing agencies decide to pass on the benefit to the end consumer.
Well, don’t be disheartened. You can always say ‘cheers’ to the fact that every swig you take, even of an imported brand, is contributing to Atmanirbhar Bharat—via astronomical tariffs!
