Some Risky Whisky Business

When the Indian government decided to lift the ban on quantity of Scotch imports from April 1, distillers in Scotland had reasons to smile. But just when they were preparing to celebrate they suddenly realised the Indian government had simultaneously lined up a dizzying mix of duties on Scotch, adding up to a whopping 706 per cent on cheaper Scotch and 464 per cent on the more expensive brands.

It ultimately seemed a case of getting a zero wrong. "We were expecting the duty on Scotch whisky to be headed towards 70 per cent from 222 per cent," Tim Jackson of the Scotch Whisky Association told Outlook. "But, in effect, the duty has been raised to 700 per cent." Consequently, a distillery in the Scottish Highlands can now bring all the Scotch it wants into India, but the punishment for drinking it stands trebled. In other words, the access to the new market could remain as elusive.

But Scotch is on the rocks in India as the Scotch Whisky Association prepares to challenge the Indian government before the wto. "We've identified at least five clear breaches of wto agreements," says Jackson, director of international affairs at the Scotch Whisky Association. And the whisky producers have the British government on their side. Says a spokesman of the department of trade and industry: "We view with considerable disappointment the new tax changes announced by the Indian government on imports of Scotch whisky following the removal of quantitative restrictions beginning April 1."

India mus
t either prepare for cheaper Scotch, or for a trade battle. In the past, the association has gone to the wto successfully against Japan, Korea and Chile. And on each occasion it enjoyed the support of the British government and the European Commission. Says Jackson: "We look forward to their support in challenging India to honour its international obligations." He is convinced that inordinately high tariff will only give a fillip to smuggling and encourage the bootleggers to find ways of quenching the tippler's thirst for Scotch.

The Indian market for Scotch is still relatively small. Hitherto, a very limited amount of Scotch has been allowed into India for sale in duty-free shops, and in hotels and restaurants. The sale of Scotch in India last year added up to just 360,000 cases, or 0.5 per cent of the 65 million cases sold in the Indian market every year. It's domestic producers who cater to much of the demand in the market.

But Scotch producers feel the Indian market holds out great promise. A manager from a Scottish distillery once famously remarked that more Scotch whisky is drunk in India than is produced in the whole of Scotland, testifying to the large quantities of spurious Scotch bootleggers do business in. It's this craze for Scotch in India that has Scottish distillers salivating.

Last year 84 million cases of Scotch whisky were sold worldwide. The biggest buyers were Americans who bought Scotch worth almost half-a-billion dollars. In contrast, Indian sales are minuscule, a trend which was expected to be reversed following the lifting of QRs on April 1. No wonder the added duties have the distillers "incensed".

The Scotch Whisky Association says high duty will not save domestic production. There is already widespread smuggling of imported spirits into the Indian market—only 45 per cent of consumption is through legal channels and just 25 per cent is believed to be duty-paid. With a 700 per cent duty Scotch will only go underground.

The lifting of quantitative restrictions on Scotch came after years of lobbying in India. Jackson accompanied trade and industry secretary Stephen Byers to India last year to have the ban on import of Scotch revoked. But what the British team didn't anticipate was that the ban would be lifted with the imposition of prohibitive duties. On his visit to India, Jackson had said, "We believe that a tariff of 70 per cent is realistic. Lower duty would also benefit India by eliminating the incentive for contraband and counterfeit liquor, resulting in increased revenue."

It obviously seems the Indian government thinks otherwise. With prohibitive duties in place, the Indian tippler will continue to find Scotch out of reach.