What Changes Would a Reduction on India’s Tax on Wine Bring?

What effects could a radical change in the Indian import duty on wine bring about? Given that negotiations for a free trade agreement between India and the European Union have been rumbling on for the best part of five years, you may think this is an issue to put on the back burner. But perhaps not – the European Commission is hoping to secure a deal by the end of this year which would see a large cut in India’s current 150% federal import tariff on wine in return for opening up EU markets.

At present India’s import duty on wine is prohibitive: In addition to the 150% tariff, there is an additional extra Duty of 4%, and then further additional taxes imposed by individual states, which range from 30%-100%+. The Commission hopes to persuade India to cut duty the 150% duty by up to a half, possibly even more.

But is there a market in India for wine?

Demand for Wine in India

While the proportion of Indians who are becoming more affluent and more travelled may still be relatively small, India’s large population means that there are significant numbers in this increased middle class. With less strict adherence to religious edicts and teachings in some areas, that means that there is a growing interest in wine. All despite the prohibitive high alcohol taxes in cities such as Mumbai (over 300%), which is also the business hub of India; illustrated by recent tastings presided over by the Union des Grands Crus de Bordeaux both there and in New Delhi.

Further Analysis

Could this herald a period of unprecedented expansion in the wine market in India, such as has been seen in Hong Kong following their scrapping of tax in 2008?

Andrei Knight, Senior Portfolio Manager at Provenance Fine Wines, injects a note of caution:

“As we have seen recently with Hong Kong/China, a reduction in tax can have a colossal effect on the wine market within any given country, depending on its size, traditions and of course its appetite for wine. India as a country is very different to Hong Kong as an island. Even if we see actual tax reductions approaching the magnitude of those predicted… with a seeming lack of ideal infrastructure to support a great influx of wine – particularly when you consider transport and storage alongside the extreme heat – I would imagine it may be a slow process. I do think it will gain momentum… but over decades perhaps rather than several years…“

White WineThere is empirical evidence not to go “over the top” when assessing what a reduction in duty could achieve for the Indian market for wine. Ten years ago many believed that India’s domestic wine production could grow to challenge imports and satisfy the increasing internal demand for wine. However, the domestic industry has yet to make much of an impact as Indian vineyards have fought to shake off their reputation for making poor quality wine. It has even been estimated that in certain states up to 80 per cent of vineyards have disappeared in recent years. One also has to take into account that “the world’s largest democracy” is just that, and real impact not only takes time, but also needs to balance the many cultures, mores and habits of this most diverse nation. India will clearly want to protect their domestic industry – and sometimes prevarication seems a safer option than going boldly where the country has never gone before…

Conclusions to be made?

But does that necessarily lead to a conclusion that the Indian growing appreciation for wine has flourished too early, faded, and withered on the vine? Perhaps not. If anything the opposite is true – this may have stimulated an increased appreciation for imported fine wine. That would indicate that a cut in tax may be coming at just the right time. Just don’t expect an overnight boom. Assuming the cut in duty will happen, then a slow but steady rise in demand is likely to be the pattern over the next decade rather than the surge in demand seen in the Asian markets.

Not only is the Indian Government’s tax on wine a downer, but the consumption of wine in the country would need to increase approximately ten-fold to something like 20-30 million people to make it a real investors dream. There’s a ban on all alcohol advertising, limits on how much wine can be stored in a residence (making large wine cellars impossible), plus the infamous Indian bureaucracy (for which we can only blame ourselves!), which will tend to add stages to a process rather than streamlining it. Therefore persuading a population that tends towards abstinence that wine-drinking is not flagrantly disregarding one’s religious beliefs, but also socially acceptable and healthy, may take time and effort over many years…


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