The
Trojan barrel
Shuchi
Srivastava tries to read between the lines while investigating the red
carpet treatment being accorded to imported foreign liquor
The
Directorate General of Foreign Trade (DGFT) has recently notified that
beverages, spirits and vinegar covered under the ITC (HS) classifications
may be imported under the duty-free entitlement. It allows hotels (three
star and above) a duty-free import-entitlement equivalent to 5 per cent
of their average foreign exchange earnings over the preceding 3 years,
subject to a minimum average foreign exchange revenue of Rs 1 million
per year. Market sources report that around 600 luxury hotels have
the necessary foreign exchange earnings to qualify for the duty-free
entitlement. After the duty-free sector (diplomats and foreign passport
holders), luxury hotels and the tourism sector are the major importers
and consumers of foreign liquor in India.
The
duty-free entitlement offers a significant cost relief to the luxury
hotels, as the existing import duties on alcoholic beverages vary from
150 per cent to 633 per cent. It is expected that the prevalent prohibitive
prices of liquor at bars and restaurants in luxury hotels may come down
by 33-50 per cent. They also expect that the current foreign brands
to domestic brands usage ratio will shift in favour of foreign brands
at most luxury hotels. Reports indicate that more than 200 eligible
hotels have already applied for the duty-free entitlement for imports.
Other
licensed restaurant and pub owners are up in arms against this DGFT
notification, claiming discrimination, as they will not be eligible
for import duty rebate. If the hotels pass on their cost advantage to
their clients, these consumers are expected to shift en masse to hotel
bars, and the independent restaurants and bars will likely face problems.
The
Government on the other hand will have a hard time extending the duty
rebate to the independent restaurants and bars, however, as that would
represent a significant revenue loss for them. Restaurants and bars
currently earn around Rs 10-12 billion per year. Besides the likely
revenue loss incurred by granting a level playing field to the restaurant
sector vis-à-vis the hotel sector, the Government will also be concerned
about the resentment from the domestic liquor industry against any such
step, as this would further shift liquor consumption towards imported
brands. How fair is this ruling, given the nature of the taxation structure
that governs our own indigenous liquor industry?
In
our attempt to successfully answer this crucial query, we speak to LM
Batra, Secretary General of the All India Distillers Association (AIDA),
and Vijay K Rekhi, President, Spirits Division, McDowell Herbertsons.
Excerpts
from the interview with Mr Batra
What
do you feel about this move?
I
admit that we have to encourage a strong global commercial interest
in our country and we stand to gain a lot from healthy level playing
competitive field. Nevertheless we have strongly recommended to the
Government that under no circumstances should cheap imported liquor
be allowed in the country at any cost.
This
exactly is one of the greatest fears expressed by all concerned, that
cheap imported liquor will flood both the white and the grey markets?
The
grey market per se is primarily a law and order problem, and we, as
an industry, look to the Government and the excise machinery to provide
our businesses with adequate protection. I seriously doubt whether
the concerned authorities are interested in taking the required steps
to enforce what is mandated under law, thanks to the corrosive corruption
that plagues the entire system.
There
is also talk that the Government is soon going to lift the 27-year-old
ban imposed on Indian breweries regarding capacity expansion?
We
are very hopeful that it will be done. The matter is currently pending
in front of the constitutional bench of the Supreme Court. I strongly
believe that it should have been removed long back. This removal is
especially welcome now, when the Government is throwing open its doors
to international competition and a majority of our indigenous breweries
and distilleries are still shackled with limited capacities.
What
is the total percentage of duties levied on domestic and foreign liquor?
Domestic
liquor manufacturers are currently shelling out close to 400 per cent
as duties while the foreign liquor companies are required to provide
little less than 250 per cent. But we have to contend with a lot of
dismay in the international community as they find this duty structure
extremely unfair and deem it ‘as denial of market existence’ notwithstanding
the fact that our own industry is taxed almost doubly.
Would
you say that the liquor segment has been the favourite flogging horse
of the Government?
The
treatment accorded to domestic manufacturers has been unfair. A claim
proven by the fact that the central excise duty levied on molasses,
the basic feedstock for liquor produced in India, is Rs 500 per tonne,
which is in complete disregard of the fact that Article 82 of the Constitution
forbids the Government from reaping any direct benefits from alcoholic
drinks meant for human consumption. Our liquor then ceases to be internationally
competitive as raw feedstock in most countries is heavily subsidised.
Given
that the Government is moving toward reducing the basic import tariffs
to 150 per cent by 2005, is it clear then that the Indian liquor industry
should gear up to defend its turf?
We
shall move the courts if any such move is made as it would be criminally
unfair given that our indigenously produced alcohol is not allowed to
be sold in these very countries which are pushing for these reductions
in these so called ‘trade barriers’.
I
had the courage to tell the Government that in this matter we should
clearly adopt a quid pro quo policy.
But
in the last budget the basic custom duty was reduced from 182 per cent
to 166 per cent?
This
occurred due to the obligations that we have to the WTO, in accordance
with our agreement where the bound rate of duty levied on processed
food has to be 150 per cent by 2004.
.....CONTD
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