Govt should consider import tariff cut on alcohol in phased manner: ICRIER

Duty cut will reduce cost of raw materials, enabling local manufacturing in India. Import duties on raw materials can be brought down to zero to support domestic manufacturing, council says

India’s high import duties on alcoholic beverages can act as a barrier in trade negotiations according to a Indian Council for Research on International Economic Relations (ICRIER) in a report released on Friday.

Therefore, the government should focus on tariff and other duty cuts in a phased manner. Besides, Indian companies should be encouraged to export to improve the trade balance.

“As India is trying to re-start its trade negotiations with key partners like the European Union and Australia, tariff reductions,” ICRIER said in its report--Developing Principles for Regulation & Pricing of Alcoholic Beverages Sector in India.

An import duty cut will reduce the cost of raw materials, thereby enabling local manufacturing in India. Import duties on raw materials can be brought down to zero to support domestic manufacturing, it recommended.

“Further, it is important to note that two types of products are imported– first, those that can compete with locally manufactured products and second, those that are not locally manufactured due to GI tag or because of lack of domestic demand. For the second, the survey found that tariffs can be easily lowered, which will improve India’s bargaining power in trade agreements,” the report said.

High import tariffs and cess of 150 per cent, even for intermediate products, goes against the government’s Make in India initiative. While imports will not be more than one percent of the domestic consumption even if tariffs are phased out, imported liquor prices in India are significantly higher than 95 per cent of the countries in the world, it said. In the past, India’s trading partners have repeatedly raised this as a key barrier in their trade agreement negotiations.

With India relaunching trade agreements with the EU and Australia, the issue of high tariffs are likely to be discussed, it said.

"Given the concerns of its trading partners, the Union Budget of 2021-22, brought down the basic customs duty (BCD) to 50 per cent, but introduced an Agriculture Infrastructure Development Cess (AIDC) of 100 per cent, which maintained the BCD+AIDC at 150 per cent, the previous tariff levels. While cess of any kind is not generally considered as a duty of Customs, Section 115 (1) of the Finance Act 2021 refers to AIDC as a duty of Customs, and hence India’s trading partners can take it up

during the discussions with their counterparts in the Indian Ministry of Commerce and Industry," the report pointed out.

Even as India is a small player in global alcoholic beverages trade, it has an export potential in this sector, which can be addressed through measures like tariff reduction and ensuring transparency in regulations across states to support manufacturing and “Make in India”, it said. Besides, owing to different regulations across states, there are differences in pricing models, cost structure, taxes, and the process of setting up of businesses, reducing ease of doing business.