The discussions surrounding India’s FTA with the UK have been closely monitored by industry stakeholders, given the limited information available. This opacity has led to frustration among UK industry stakeholders and parliamentarians.

Recent reports from Indian media outlets, including Money Control, The Hindu, and Business Today, suggest that a resolution may be on the horizon. A senior government official has indicated that India and the UK are nearing the conclusion of negotiations. However, challenges persist, notably in areas such as intellectual property rights (IPR), investment treaties, and rules of origin.

While consensus has been reached on 19 out of 26 chapters, suggesting the FTA could take effect by the end of 2023, discussions have been intricate. This FTA may serve as a blueprint for India’s future trade treaty negotiations, encompassing subjects like IP, digital trade, personal data protection, market access, and bilateral investments.

Notably, progress has been made in discussions regarding the import of Scotch whisky into India, a development that is likely to resonate with Indian consumers. The 12th round of India-UK FTA talks is scheduled for August 8 in New Delhi, where tariff concessions on whisky imports are expected to be addressed. Additionally, a trade and investment working group is set to convene on August 24 and 25.

Perspectives of Key Stakeholders

From the outset, Indian Made Foreign Liquor (IMFL) brands have harboured reservations about potential concessions granted to UK whisky imports. This sentiment arises from the growing consumption of premium liquor in India and the competitive dynamics of the market.

In contrast, European players, such as Chivas Brothers’ Chairman and CEO Jean-Etienne Gourgues, point out that Indian whisky brands in the UK currently face no tariffs. They advocate for a level playing field in the Indian market.

British Negotiators Pursue Gains for the Scottish Industry

For British trade negotiators, securing tariff concessions on Scotch whisky exports to India is of utmost importance to the Scottish economy, especially post-Brexit and the UK government’s stance against a second independence referendum. This industry is a significant employer, with approximately 11,000 jobs, primarily in rural areas of Scotland. Moreover, Scotch whisky represents the largest export within the UK’s beverage sector.

Potential Reduction in Tariffs on Imported Scotch Whisky by India

Within the proposed FTA between India and the UK, discussions centre on lowering import duties for bottled Scotch whisky above the minimum import price (MIP) threshold.

Currently, import duties for Scotch whisky from the UK—both bottled and bulk—stand at 150% above the MIP. There are proposals to reduce this to 100% for bottled Scotch and 75% for casks. Furthermore, on-going negotiations consider gradually decreasing customer duty on bottled Scotch over a 10-year period, with the goal of reaching 50% eventually.

Drawing from Australia’s experience with an interim FTA, where India reduced customs duties on premium wine segments, there is a push from the domestic industry for an MIP of 5% for each 750 ml bottle. However, it is speculated that India might agree to an MIP of US$4 per bottle, potentially leading to an influx of Scotch imports from the UK.

Domestic players express concerns that such a move could adversely impact home-grown brands and IMFL products, potentially leading to a reduction in employment within the industry.

In fact, even a US$1 difference in MIP, from US$5 to US$4, could significantly increase the shipment of popular whisky imports like Johnnie Walker Black Label, Chivas Regal, and The Glenlivet into India.

Understanding Indian Made Foreign Liquor (IMFL)

IMFL represents a category of alcoholic beverages in India designed to replicate the styles and flavours of foreign liquors. These spirits are locally crafted using domestically sourced ingredients and specific techniques to achieve a taste profile similar to their foreign counterparts. Key companies producing IMFL beverages in the whisky segment include United Spirits Limited (Signature, McDowell’s No.1), Radico Khaitan Limited (8 PM Whisky), Allied Blenders and Distillers Pvt. Ltd. (Officer’s Choice), and Pernod Ricard India (Royal Stag), among others.

Trends in India’s Whisky Market

While currently accounting for only 3.3% of the overall Indian whisky market, imported products, particularly Scotch, have a more substantial share of approximately 32% in the middle and premium segments (whiskies priced above INR 750 or approximately US$9.11 per bottle). This share has steadily increased over the past four years, according to data from IWSR, an international agency tracking the alcohol market. During the first eight months of FY 2022-23, India’s alcohol industry witnessed a 40% surge in whisky imports compared to the total imports recorded in the entire fiscal year 2021-22.

Domestic players have expressed concerns to the Indian government regarding the surge in bottled Scotch imports in recent years, even without any reduction in import duty. For instance, during 2022-23, bottled whisky imports more than doubled to US$316 million from US$152 million, while the value of bulk whisky shipments increased by over 40% to approximately US$149 million during the same period.

Scotch whisky constitutes a significant 96% portion of India’s total whisky imports, holding a dominant share of more than 80% in the premium whisky market, specifically for products priced above INR 1,000 or approximately US$12.15 per 750ml bottle.

A notable example is the state of Maharashtra, which reduced its excise duty on imported whiskies from 300% to 150% in November 2021, resulting in an increased influx of Scotch imports. This decision made Scotch whisky more competitive in the premium liquor market, given that the excise duty on domestic whisky in Maharashtra remains at 300%.