To meet the demands of import duty reduction on wines and spirits made by potential free trade agreement (FTA) partners like the UK, the EU and Australia, and enhance domestic value-addition, the government should focus on a phased reduction of tariffs and duties on such items above a threshold price level, a study conducted by Delhi-based research agency ICRIER has proposed.
The study — ‘developing principles for regulation of alcoholic beverages sector in India’ — to be released on Friday and shared with the Ministries of Finance and Commerce & Industry, has proposed duty reduction phased over three years, mainly on high-end products, so that the Indian market is not flooded with cheap liquor hurting domestic industry.
High import tariffs and cess of 150 per cent, even for intermediate products in the alcoholic beverages sector, counters the basic premise of “Make in India”, the report pointed out.
“While imports will not be more than one percent of the domestic consumption even if tariffs are phased-out, imported liquor prices in India are significantly higher than 95 per cent of the countries in the world and India’s trading partners (like the US, the UK, the EU, Australia) have repeatedly raised this as a key barrier in their trade agreement negotiations,” it highlighted.
Highest growing market
India is one of the fastest growing alcoholic beverages markets globally, with an estimated market size of $52.5 billion in 2020 and is expected to grow at 6.8 per cent between 2020 and 2023.
As per the proposal, in the first year, basic customs duty (BCD) on Bottled in Origin (BIO) spirits (including whisky) may be brought down to 75 per cent ad valorem from the current 150 per cent, for all imports priced at over $25 (₹ 1,860) per case of 9 litres. By the third year, duty should be brought down to 30 per cent. For wines, the threshold level should be higher at $20 (₹1,490), per case of 9 litres.
In case of bulk spirits, blended and bottled in India, BCD may be brought down to 75 per cent ad valorem from the current 150 per cent applicable to products priced at over $2.2 (₹165) per litres of pure alcohol.
By the third year, duty may be brought down to 15 per cent ad valorem, as it is one of the highest imported categories and is used as a raw material. “Duty reduction in this segment can help in the growth of domestic manufacturing,” the report pointed out.
Since State taxes, too, are high and alcohol is among the top three revenue earning components for all States, they should lay down clear policies at predictable intervals of two to three years, which can help businesses to expand, make long-term investments, and encourage new business models to flourish, the report suggested.
The report, prepared by ICRIER in association with law firm PLR chamber, also includes findings of a primary survey, with inputs from 80 key stakeholders including alcohol beverage companies, industry bodies, bottling plants/contract manufacturers/distilleries, raw material, packaging and other input suppliers, distributors, wholesalers, logistics agents, organised retailers, hotels, restaurants & pubs, industry experts and government officials.