Australia FTA: Wine industry gears up for foreign market's entry in India

The duty cut regime on Australian wine under the recent trade agreement strikes a balance between protecting the domestic industry and opening the path for greater investments and tie-ups

India’s fledgling wine industry that has been shielded from external competition for over two decades may now have to gear up for the entry of established Australian and European winemakers into the country.
 

Earlier this year, India signed a free trade agreement (FTA) with Australia, giving the country greater market access for, among other things, wines and the industry hopes that the Centre will follow a similar template for the trade deal with the European Union, which is still being negotiated.
 

India imposes a steep 150 per cent import duty for wines, which is one of the highest in the world. Under the FTA, New Delhi agreed to reduce customs duty on Australian wines, but in a staggered manner to ensure that the domestic wine industry doesn't end up being subjected to predatory pricing.

According to the new structure, tariffs on wine with a minimum import price of $5 per bottle will be reduced from to 100 per cent once the deal is implemented and subsequently to 50 per cent over 10 years. The duty on bottles with a minimum import price of $15 will be reduced to 75 per cent, and subsequently to 25 per cent over 10 years.

To be sure, the minimum import price is the actual price paid to the exporter (excluding duty), which includes the cost of the goods, insurance and freight. The price to the retailer is higher since central and state taxes are levied on the product.

This is the first time that India has agreed to liberalise wine under a trade pact, with the government trying hard to strike a balance between protecting the domestic industry, while also opening the path for greater investments and tie-ups with Australian companies. This can eventually drive exports and give push to its priority towards Make in India.

Vinod Giri, Director General of Confederation of Indian Alcoholic Beverage Companies (CIABC) said greater market access to any country through FTAs do have some adverse impact on the domestic industry. On the brighter side, the Indian wine industry will also gain from the technology and the expertise of Australia, which is one of the top global wine exporters.

“The reality is that FTAs are being signed for the larger interest of the economy. While doing so, the government has still ensured that the mainstream wine segment — roughly below Rs 2.000 per 750 ml bottle in Delhi — will not be adversely affected by these concessions. On the other hand, the FTA will provide opportunities for high quality and premium Aus­tr­alian wine, in which a country like Australia takes pride,” Giri added.

“Going ahead, we will have to see how the Indian wine industry performs, especially in the case of high quality wines, where it is still building expertise against a stiff global competition,” Giri said.

According to a report released by thinktank Indian Council for Research on International Economic Relations (ICRIER) earlier this year, under the India-Australia Economic Cooperation and Trade Agreement (ECTA), even though India has agreed to reduce duty on Australian wines, the tariff reduction will benefit only the upper end of wine imports and high-income consumers.
This means that the threshold as agreed in the agreement only covers 2 per cent of wine imports from Australia.
 

The rest of wine imported from Australia — about 98 per cent, which is consumed by middle income consumers — continues to attract a duty of 150 per cent, the report said.
 

Since the trade deal with Australia is expected to kick in from December 29, the “on ground” impact of the trade pact is yet to be seen.

The Indian wine market in FY21 stood at Rs 1,100 crore and is estimated to reach Rs 2,610 crore by FY25, according to Technopak Advisors’ data in Sula Vineyards’ red herring prospectus.
 

Between April and October, India imported wine worth $23.54 million, up 123 per cent on year. During this period Australia was the leading wine import partner for India, followed by France, Italy and Singapore. On the other hand, India exported wines worth only $2.5 million, up 8 per cent year-on-year. Of this, the Netherlands has over 50 per cent share, followed by the United Arab Emirates (UAE), Singapore and Japan.

Industry officials said that in India, the (grape) vine yield is lower compared to top wine-producing countries. This is where Australia can step in since it has the expertise to improve vine yields, and speed up the growth of the pla­n­­­tations. Apart fr­om that, Australia can also help the domestic industry to align Ind­ian wines to efficie­ntly tackle non-tariff barriers, such as meeting stringent inter­national requireme­nts for certification.

The International Spirits and Wine Association of India (ISWAI) expects the FTA is likely to encourage joint venture partnerships, collaborations, best agricultural practices, and lobby for a uniformity of state taxes, which is a challenge for the entire industry, not just the wine sector.
 

As Nita Kapoor, Chief Executive Officer (CEO) of ISWAI, said, “When you are seeking scale, you need more players in the market, economies of scale. We also need best agricultural practices and partnerships. Indian wine companies are already visiting Australia and are looking at ways to get into some tie ups with Australian wine manufacturers.”