Free trade agreement fix: Liquor industry red flags UK maturation norms

Non-tariff limit in the minimum maturation (ageing) clause imposed by the UK government (for Scotch and whisky) remains unaddressed in the India-UK free trade agreement (FTA), said liquor industry executives, noting that the issue continues to remain a key concern.

 

According to the UK and European Union (EU) regulations, a spirit must be matured for a minimum of three years in wooden casks to be legally defined and sold as “whisky.”

 

However, Indian whisky producers argue that India's hotter, tropical climate accelerates the maturation process, achieving it in less than a year.

 

The same climate leads to higher alcohol evaporation in the casks compared with Scotland but Indian players have to adhere to the three-year rule.

 

The India-UK FTA is currently silent on whether this regulation has been relaxed for Indian players.

 

India has agreed to reduce import duties on Scotch, whisky, and gin from 150 per cent to 75 per cent immediately, with a further reduction to 40 per cent over the next decade.

 

“This will help narrow down the price gap between domestic and duty-free Scotch, with prices that could fall in the range of 8-20 per cent, reducing the premium (over duty free bottled in origin or BIO) from 31 per cent to 20 per cent,” said Elara Capital in a note.

 

“The tariff is proposed to be cut further to 40 per cent during the next few years. The Indian alcohol-beverage (alco-bev) industry is concerned about this as UK exporters stand to gain at the expense of the Indian industry. This has not been given any relief on the maturation front for Indian exports to the UK,” said Prem Dewan, chairman and managing director of DeVANS Modern Breweries.

 

Some noted that British liquor makers could stand to gain at the expense of the Indian industry, which has not been given any relief on the maturation front.

 

Following the announcement of the deal, several listed liquor stocks have witnessed a decline. As of Thursday’s market close, Globus Spirits fell 1.65 per cent to ₹960 per share, SOM Distilleries dropped 4.93 per cent to ₹120.5, and United Spirits Limited (a part of Diageo) declined 3.34 per cent to ₹1,536.65.

 

Vinod Giri, director general of the Brewers Association of India (BAI), said that in the short term, Scotch producers are likely to enhance their margins by factoring duty savings into invoice prices.

 

“I don’t think the market will get swamped with cheap Scotch as the net impact of duty reduction in consumer prices is not going to be more than 10 per cent. Indian companies importing raw materials for blending with domestic whiskys in India will make savings on cost. They stand to benefit. We need to watch the long-term impact on the bottled in India (BII) category,” Giri added.

 

Abhishek Khaitan, managing director of Radico Khaitan, stated that the company plans to import Scotch malt worth ₹250 crore in 2025–26, and the trade agreement is expected to significantly benefit their operations.

 

Companies such as Radico Khaitan, United Spirits Limited (USL) by Diageo, and Tilaknagar Industries manufacture and bottle their products domestically. Brands like 100 Pipers by Pernod Ricard and Godawan by Diageo, priced between ₹2,000 and ₹6,000, fall under the BII category.

 

Debashish Shyam, co-founder & director, Ardent Alcobev, added, “BIO' category brands like Dram Bell, we would be able to provide a more affordable price point to the consumer. Our ability to reinvest in generating consumer adoption will increase.”

 

Abhishek Khaitan, managing director of Radico Khaitan, stated that the company plans to import Scotch malt worth ₹250 crore in 2025–26, and the trade agreement is expected to significantly benefit their operations.

 

“As the largest importer of Scotch whisky for blending, Radico sees significant potential for cost advantages through the expected reduction in customs duties,” added Khaitan.

 

“The removal of tariffs will enable Indian spirits to find their way onto UK shelves and compete on a more level-playing field with international brands.

 

For Indian whisky, it's an opportunity to receive the acclaim it deserves. And for Craft Gin, where Indian botanicals and imagination truly come into their own, it marks the beginning of a new chapter,” said Shekhar Swarup, joint managing director, Globus Spirits.

 

However, not all may immediately pass on the benefit of lower prices to consumers. Ardent Alcobev noted that it will adopt a wait-and-watch approach to fully understand the modalities of the FTA.

 

John Distilleries stated it is too early to outline pricing strategies, noting it is closely monitoring the agreement's progress and will evaluate its impact once final terms are confirmed.

 

Paul P. John, chairman of John Distilleries, however, said that the deal will improve the ease of doing business for Indian goods in the UK.   

WHAT THEY SAY

 

DeVans: Tariff cut to 40%, Indian alco-bev industry fears unfair UK gain 

 

Brewers Association of India: Scotch makers may raise margins by adjusting for duty savings

 

Radico Khaitan: Plan to import scotch malt worth ₹250 crore in the current financial year

 

Globus Spirits: Removal of tariffs will enable Indian Spirits to find their way onto UK shelves