India offers to slash import duty on wines, spirits to 40%

In a make-or-break scenario for signing of the free trade agreement (FTA) with the European Union, India has offered to drastically cut Customs duties on wines and spirits to 40 per cent from the current 150 per cent.

The offer - made by Commerce and Industry Minister Anand Sharma to EU trade commissioner Karel de Gucht on the sidelines of the Organisation for Economic Co-operation and Development summit in Paris recently - was huge, compared to India's earlier proposal to cut the Customs duty to 80 per cent. It would mean up to a 73-percentage-point cut in India's Customs duty.

India also proposed to cut the entry price per bottle of wine to $3.7 and whisky to $5.5.

However, the EU is bargaining for concessions. According to senior officials involved in the talks, the Europeans want the duties for wines and spirits reduced further to 30 per cent and the prices of a bottle of wine and whisky to $3.5.

"This is the best we could offer at this time. It is a make-or-break situation now. We have told them clearly what it is and we cannot go below this. We have to follow the TERC (Trade and Economic Relations Committee) mandate," a senior commerce department official told Business Standard. Apparently, during the last ministerial meeting that took place on May 14, EU had handed over a letter by its agriculture commissioner Dacian Ciolos to Sharma, asking him to reduce the Customs duty to 30 per cent and maintain the same price point for both wine and whisky at $3.5 a bottle.

The issue was also discussed at length during the meeting of chief negotiators from both sides last month. At that time as well, India had told EU it would not go below what had been mandated by the TERC, headed by Prime Minister Manmohan Singh.

India's wine segment is up in arms against the government's offer. "A reduction of duties to 40 per cent across the board means opening the gate for cheap imports. This way, the Indian wine industry will perish and this will also impact the farming community," said Subhash Arora, president, Indian Wine Academy. He said the government cannot afford to take such a decision at election time. "If this happens, prices will come down so much that nobody will then opt for Indian wines anymore. And even if they are able to sign the treaty on this, Parliament will not let it pass."

Last year, India had said it would cut the duties to 80-90 per cent to make imported wine and spirits from European countries affordable to Indian consumers.

Sharma and Gucht are expected to meet again to salvage the deal. However, the dates for the meeting have not been fixed. It might happen later this month or early next month in Brussels.

India and the 27-nation bloc have been negotiating this treaty since 2007. The agreement aims at slashing or eliminating duties on over 90 per cent of the goods traded between the two sides, while liberalising services and investments sectors. Both sides have failed to meet the deadlines due to stiff differences of tariff cuts, especially on wines and spirits, as well as automobiles.