India-UK FTA: Alcobev sector cheers halved tariffs on scotch and gin

The reduction in import tariffs will also bring a huge benefit to all manufacturers in the Indian Made Foreign Liquor (IMFL) industry

Stakeholders of the alcobev sectors on July 24 applauded the signing of the India-UK Free Trade Agreement (FTA), and said that for this sector, the FTA paves the way for a more balanced and equitable trade environment, particularly given that Indian alcohol exports to the UK have zero import duties.

Sanjit Padhi, chief executive officer of International Spirits and Wines Association of India (ISWAI) said, “For the alcobev sector, the immediate tariff reduction on Scotch whisky and gin imports from 150 percent to 75 percent, and subsequent reduction to 40 percent over the decade, will open up and expand market opportunities for the industry."

Under the FTA, the total customs duty (TCD) on imported alcoholic spirits, limited to whisky and gin from the UK, will be halved at the first stage of entry-into-force from 150 percent to 75 percent, followed by a progressive reduction to 40 percent over the next decade. The revised tariff structure will apply to both Bottled-in-Origin (BIO) and bulk imports.

The deal will significantly benefit Indian consumers, as premium international spirits will become more accessible, thereby accelerating the ongoing trend of premiumization, say industry stakeholders. It will also stimulate growth across ancillary sectors such as hospitality, tourism, and retail, while potentially increasing revenue for Indian states, they say.

According to ISWAI, India is one of the world’s largest alcobev markets and sells over 400 million cases of Indian alcoholic spirits annually.  Yet imported spirits – Bottled in Origin and Bulk Bottled in India, - account for a mere 2.6 percent of the total market. The imported category is dominated by whisky with Scotch being around 81 percent of the overall imports of 10.9 million cases of alcoholic spirits.

The reduction in import tariffs will also bring a huge benefit to all manufacturers in the Indian Made Foreign Liquor (IMFL) industry as 79 percent of the Scotch imported into the country is in Bulk form, which is used for bottling in India and for blending by local brands of whisky in the IMFL category, said ISWAI.

“This tariff reduction is expected to make premium UK brands more affordable in India, boosting their market share and benefiting companies like Diageo and Chivas Brothers while enhancing consumer choice and potentially increasing state revenues through premiumization," said Onkar Sharma, Partner at Khaitan & Co.

However, it will be interesting to see if the actual price for the consumer goes down or not, added Sharma. "Since, alcoholic beverages are subject to state specific laws, it would be interesting to see how each state react to this, more so from an angle of augmenting their state excise collections (single largest revenue source for states) and protecting the domestic manufacturer in the states," he added.