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The Indian market for Scotch Whisky

15 March 2022 by Ambrosia Magazine

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India is Scotch Whisky’s second largest export market by volume, with the equivalent of more than 131 million bottles exported there in 2019. The volume of Scotch Whisky exports to India have grown by more than 200% in the past decade alone, and whisky is hugely popular in India. In fact, India is the largest whisky market in the world. But while many Indian consumers are keen to add a bottle of Scotch to their shelves, bars and collections, Scotch Whisky has just a 2% share of the Indian whisky market. There is huge potential for that to grow. The new year offers new hope for reducing the longstanding 150% tariff on Scotch Whisky in India.

Launching UK/India trade talks offers a golden opportunity to reach an ambitious tariff reduction in an early harvest deal that could grow Scotch Whisky exports to India by £1 billion over five years. Tackling the tariff and State level regulatory issues would open the market up to smaller producers who are effectively locked out by the substantial barriers to trade.

Improved market access for Scotch would enable an increasing number of Indian consumers to enjoy our premium product. It would also be good for our industry and Indian government tax revenues – a win-win for all, says Mark Kent, Chief Executive of the Scotch Whisky Association.

 

 

 

 

 

 

 

 

 

Barriers to export success

Scotch Whisky is popular among Indian consumers, but a 150% tariff on imports of Scotch Whisky into India mean that it’s significantly more expensive to buy Scotch over Indian whiskies. As a result, India sees many ‘fake’ Scotch Whiskies on the market, produced cheaply and traded on the reputation of Scotch Whisky as a premium product. This unfair competition, alongside the 150% tariff and combined with the complexity of exporting whiskies into India, mean that many Scotch Whisky producers are unable to enter this important market. Breaking down these barriers to trade in India would open up huge opportunities for Scotch Whisky exports.

What the Scotch Whisky industry wants to see from a UK-India Free Trade Agreement

India is the Scotch Whisky industry’s number one priority market, and a UK-India trade deal has the potential to increase Scotch Whisky exports to the country by £1bn over the next five years. Reducing the 150% tariff on Scotch Whisky would make it more affordable in India, while still remaining a high-end, premium product. If the tariff were liberalised, Scotch Whisky’s market share could treble to 6%, giving greater access to Scotch Whisky products for Indian consumers, but still allowing Indian whiskies and other spirits to retain the dominant share of the market.

Good for Scotland and the UK

Many more Scotch Whisky companies – including smaller and independent producers – would gain access to the Indian market to sell their whiskies. If the tariff were reduced and exports were to rise, India would overtake France as Scotch Whisky’s second largest market by value worldwide, after only the United States.

Boosting access to the Indian market would secure jobs and investment in the Scotch Whisky industry across Scotland into the future. The industry’s contribution to the economy would rise by more than £300 million to nearly £6bn.

Higher exports mean higher production – there would be a significant impact into our supply chain too, in Scotland and across the UK, also growing jobs and investment.

Good for India

Bringing down the 150% tariff on Scotch Whisky would increase Indian government tax revenue at federal and state level by £3.4 billion annually through an increase in sales. Scotch Whisky would be able to compete fairly alongside Indian whiskies, which will continue to dominate the Indian whisky market.

Because a lot of the whisky exported to India is sent in bulk (some for bottling as Scotch Whisky, most for use in Indian whisky) bringing down the tariffs would also support domestic producers, reducing their costs and boosting employment in the Indian industry.

The anticipated launch of the UK-India FTA negotiations represents a significant opportunity for the Scotch Whisky sector. Despite India being the largest global whisky market, Scotch Whisky has a 2% share due to high import tariffs, state level excise duty taxes, and other market access barriers. Overcoming these barriers must be the UK government’s top priority in the talks – it will benefit UK producers, Indian businesses that import bulk Scotch Whisky for bottling or use as an ingredient in Indian whisky production, and Indian consumers who appreciate Scotch Whisky.

• In 2020, India was the 3rd largest market for Scotch Whisky by volume
• Reducing the tariff could create up to 1300 UK jobs
• Reducing the 150% tariff could grows exports by £1.2bn over five years
• Scotch Whisky represents just 2% of the Indian market for whisky

The top priority for the Scotch Whisky industry is the liberalisation of the 150% Basic Customs Duty (BCD). Among the highest global tariffs, this represents a significant barrier to trade. The SWA wants to see the tariff addressed in an ‘early harvest’ interim agreement, ahead of a comprehensive trade agreement.

Modelling suggests that the phased reduction of the BCD could see Scotch Whisky exports grow by £1 billion in the first 3-5 years. India is already our third largest market by volume; this would make it our second by value, after only the USA. This step would also see an increase of c. £3.4 billion in revenue to the Indian Government.

More broadly, there are significant ease of doing business and market access issues, often at a state level. These are complex issues which often restrict market access to SMEs, and therefore will require proactive, collaborative and, in some cases, creative solutions. There is significant opportunity for both UK and Indian business should these challenges be overcome.

Most notably, simplifying the state level excise duties and removing state level import tariffs could in fact see an increase in state level revenue as more businesses access the market, with a potential cumulative economic contribution of £5.1 billion over the first 3-5 years. In fact, this potential increase to state revenue was cited as a reason for the recent 50% cut in excise duty in Maharashtra.

 

 

 

 

 

 

 

 

 

There are also other ease of doing business issues which limit trade. This includes the customs valuation procedure, where there are concerns about validity with the WTO Customs Valuation Procedure. There are also restrictive controls around the sale of alcohol, such as ‘dry days’ (which vary state to state), restrictions around the location of retail outlets, and restrictions on the sale of imported alcohol through the military Canteen Stores Department. Labelling requirements also add further friction and cost into the supply chain, particularly when they are unnecessarily strict and implemented at short notice.

It is important to consider the positive impact that improving Scotch Whisky’s access to the Indian market will have on Indian businesses and consumers. The majority of Scotch Whisky (c. 60%) is exported to India in bulk, and is then either bottled in India or used as an ingredient in the production of Indian whiskies and other blended beverages. In addition, there is increasing demand for Scotch Whisky in India by informed consumers who want to see more choice at a more affordable price.

The negotiations around the interim agreement could provide a good opportunity to lay the groundwork to resolving these issues and establishing the necessary relationships across Indian state and federal government. The full FTA negotiations then provide the ideal opportunity to establish longer term solutions, including establishing the necessary structures and processes to resolve these issues.

The SWA welcomes the potential for a trade deal between the UK and India, which provides the opportunity to truly transform the Scotch Whisky sector, given the scale of the Indian market. The liberalisation of the BCD must be the priority for any interim agreement, as this represents the greatest opportunity for the sector. This must then be supported by measures which overcome those significant market barriers and ensure that the transformational potential of the talks can be fully realised in a UK-India agreement.

This report was contributed by knowledge partner: