Can India’s spirit tax issues be resolved?

6th February, 2013 by Chris Mercer

The huge potential of India’s emerging young middle classes is being frustrated by the thorny old issue of excise duty, reports Chris Mercer.

India spirits

A tired old issue? India’s excise duty is still causing pain for the international spirits market

Is there another destination in the known universe that draws such gushing enthusiasm from international distillers, while at the same time remaining so closed to their spirits? Against the odds, India’s stock only rises.

Pernod Ricard’s Paul Scanlon is unequivocal about the place. “It is the most complicated country to deal with in the world,” says the international commercial director of Pernod’s Chivas Brothers whisky and gin business.

Beyond a 150% federal tariff on imported spirits, India’s 28 states have spun a web of regulatory intrigue at the local level. New threads are woven and others cut loose, but progress is often hard to decipher for distillers and consumers alike. “If things work out better for the consumer, that’s just pure luck, I think,” says Delhi-based sommelier Magandeep Singh.

Still, international spirits makers, and domestic ones to a lesser extent, appear content to humour costly bureaucratic whims for a shot at the big time. “There’s going to be 50 million middle class consumers in 10 years’ time, so it’s clearly a big, big opportunity,” Scanlon says.

He cites forecasts that India will have 22m people earning more than US$100,000 by 2022. That figure is 1m today. The number of those earning at least US$60,000 is set to double to 36m over the same period. India is also bursting with yuppies – young urban professionals – with three-quarters of the population still under 35 years of age.

Plenty of them want a drink, too. It seems sensible to assume that fledgling beer and wine consumption will rise, especially given the arrival of more international players, from Gallo to Heineken. Still, spirits consumption was set to near 2.5 billion litres in 2012, up 56% on five years ago. By the end of 2016, it will rise by another 44%, according to Euromonitor International forecasts.

“People want to be seen drinking vodka – it’s about conspicuous consumption,” reports Singh. And bartenders are also pushing the spirit. “At cocktail competitions, nine times out of 10 it will be vodka-based,” he adds.

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