Centre urged not to reduce customs duty on UK imports

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SME Times News Bureau | 16 Mar, 2021
Amid reports of the UK mounting pressure on the Indian government for massive tariff concessions on imports of Scotch whiskey in the free trade agreement negotiations, the Confederation of Indian Alcoholic Beverage Companies (CIABC) has strongly objected to any plans to slash the Basic Customs Duty (BCD).

The CIABC has said that since the imports are already dominating the Indian market, any reduction in the BCD will make matters worse and squeeze Indian products totally out.

"The balance of trade in alcoholic beverages is highly skewed in favour of the UK and any reduction in BCD will further worsen it," said CIABC Director General Vinod Giri.

The CIABC has been part of various recent meetings that the Ministry of Commerce has been organising with various stakeholders before the trade talks with the UK.

"India exports just Rs 5 crore worth of alcoholic beverages annually to UK against an import of Rs 1,300 crore. Exports to the UK constitute only 0.2 per cent of India's total exports of alcoholic beverages whereas imports from UK are 24 per cent of India's total import of alcoholic beverages," Giri said.

To support its argument, the CIABC has said that in premium segment of liquor (products costing above Rs 1,000 per 750 ml in Delhi) fully imported products and products imported in bulk and just bottled in India account for a whopping 98 per cent of the sales while a miniscule 2 per cent sale comprises genuine Indian products.

The CIABC has pointed out that preferential treatment to imported liquor by some state governments has created undue hurdles in growth of high quality Indian products.

"Earlier imported products did not have direct competition in India, but today there are several super premium Indian products; including Indian premium malt whisky brands such as Amrut, Paul John, Rampur etc, which are being exported to over 60 countries. They are in a nascent phase and need support from the Indian government in order to build scale and be globally competitive," said Giri.

"Already Indian products are at a disadvantage even at current BCD level. In many major Indian cities, imported products have a price advantage vis-a-vis comparable Indian products. Reducing BCD will make Indian products less competitive."

Giving reference of pricing and sales in Delhi, the largest market for such premium products in India, Giri said imported premium scotch/whiskey like Johnny Walker Black Label which costs Rs 2,920 sold 26,736 cases of 9 litres each in 2019-20, while the sale of Indian scotch Amrut Amalgam which costs Rs 3,640 stood at 922 cases.

The CIABC has suggested that if the government needs to tweak the BCD to facilitate the trade treaty between India and the UK, it should reduce BCD gradually to a sustainable level over a time window which allows existing disparities to dimmish.

The BCD should be reduced from today's level of 150 per cent to 50% in the next 10 years, it added.

The Indian liquor manufacturers have also asked the government to prevent predatory pricing and dumping through a threshold import price (MEP) so that products priced below which are taxed at the same rate.

"For the first year the government should fix the threshold import price at $60 per case (of 9 litres at cif), which can be reduced to $50 in next three years, then $40 in five years and $35 in 10 years. This is needed because the cost of production in India is at least 50-75% more. The cost of capital in India is 12-14 per cent compared to 2-3 per cent in the UK, evaporation losses are 3 to 4 times higher in India due to warmer climate which increases cost of production and cost of maturing," said Giri.

"Similarly, fixed fees and charges on manufacturing like distillery license fee, brand registration fee, label registration fee, bottling fees, local cess etc in India are among the highest in the world. Excise duties and taxes on production of alcohol are also very high in India (300-400 per cent of company billing price) and in many states, the governments fix company's selling prices thus denying them opportunity to pass on high taxes."

The CIABC DG also pointed out that the Indian products face other intangible cost disadvantages.

For instance, Indian laws allow local products only in fixed few pack sizes, and in alcoholic strength of 75 Proof only.

Products imported from the UK enjoy tremendous flexibility helping them target consumers tastes, wallets and occasions more effectively.

Similarly, Indian-made products are subject to multiple regulatory agencies such as FSSAI, States' Excise and Legal Metrology which increases the cost of compliance, while imports are exempt from most such controls.

Giri further noted that restrictive trade policies are also hampering growth of Indian exports to the EU and UK.

"While export of alcoholic beverages from India stood at 7.3 million cases (9 litre each) in year 2019-20, the exports to the entire EU (including UK) were less than 30,000 cases which consisted of Indian super premium malt whiskies. Definition of products by the UK is such that it does not permit Indian Whisky and Indian Rum which are predominant exports to the rest of the world. This has made the Indo-UK Exim heavily skewed against Indian products."

The CIABC has asked the Indian government to ask the UK government for removal of non-tariff barriers to allow easy export of Indian made alcoholic beverages to the UK.

It has also demanded that the Indian whiskies should be allowed to be sold in the UK as whiskies irrespective of whether they are made from malt, grain spirits or molasses-based spirits.

"They should accept Indian recipes as India accepts British recipes for whiskey," said Giri.

Similarly, the UK should remove the EU restriction of minimum three years maturation period for whiskey as well as for rum as it has been scientifically established that in warm Indian conditions spirit ages 3-3.5 times faster than in the UK.

Also, the evaporation losses in India are much higher and forcing 3 years maturity adds significantly to cost of production, the CIABC said.