Indian drinkers have become the toast of trade deals. With a fast-growing alcoholic beverages market in India which now also includes a sizable premium segment as Indians are increasingly taking to expensive brands, other countries seek access to it with lower duties. India and the United Kingdom on Thursday signed a historic Free Trade Agreement (FTA) which is set to reduce average tariffs on UK goods into India from 15% to 3% while Indian exporters will benefit from near-total elimination on about 99% of product lines, covering almost 100% of the trade value.
An important part of the India-UK FTA is whisky. The FTA halves import duties on UK-produced whisky and gin from 150% to 75% to begin with, followed by a further decrease to 40% within a decade.
In February, India slashed import duty on American bourbon whiskey to 50 per cent from 150% as it warmed up to negotiating a mega trade deal with the US. The reduction in customs duty on bourbon whiskey was notified just ahead of Prime Minister Narendra Modi's talks with US President Donald Trump. A few years ago, under an interim pact trade pact with Australia, tariffs on Australian wine priced above $5 per 750 ml bottle were cut to 100% from 150%, with a provision of a reduction to 50% over 10 years, while for bottles above $15, tariffs dropped to 75%, with a target of 25% in a decade. The world is cheering Indian drinkers as their numbers grow and a rising economy boosts consumption of liquor.
Indian drinkers are a growing tribe
India's alcoholic beverage market is a large and rapidly growing sector. It is third largest globally and second largest for spirits. The market is estimated to be worth USD 52.4 billion, with a projected CAGR of 7.7 per cent from 2025 to 2032. As regards the Indian whisky market, it is dominated by country-made liquor (88 per cent) and India-made foreign liquor (9.5 per cent). Scotch whisky constitutes only 2.5 per cent of the total whisky market.
According to the Scotch Whisky Association (SWA), India has regained its position from France, as the world's number one Scotch whisky export market by volume, with 192 million bottles exported in 2024, as against 167 million bottles in 2023.
With 100 million people expected to enter the age bracket for legal alcohol consumption in India in the next five years, most global firms count the country among their top three priority markets. For Diageo and Pernod Ricard, two of the world's biggest spirits firms, India is their largest market in terms of volumes. More than half of the world's top 20 most consumed whiskey brands are Indian, as per the latest report by Drinks International.
How will the India-UK FTA impact the Indian whisky market?
Prices of scotch whisky will surely come down across the country when the FTA takes effect next year. Alcoholic beverage company Pernod Ricard India had said in May that a reduction in prices of imported liquor following the implementation of the India-UK FTA will lead to lower retail prices across most states. "Notably, the FTA is expected to improve access to premium Scotch whiskies by making them more competitively priced, as reductions in import duties on Bottled-in Origin products will translate into lower retail prices across most states," a PRI spokesperson told PTI.
"These price reductions will benefit Indian consumers, while having minimal impact on Indian Made Foreign Liquor, which remains at a significantly lower price point," the spokesperson said.
Customs duties make up about 20% of the shelf price for scotch, with state taxes, production, and marketing costs contributing the rest. "The FTA will lead to better pricing on bulk whisky for India, opening up the market for new UK whisky brands and exposing Indian consumers to relatively smaller scotch whisky brands and casks. We believe the consumer price of scotch could come down by at least 20-22% but that will largely depend on local taxes and how companies work backwards on their calculations," said an industry expert. In India, retail prices of liquor are controlled by policies of respective state governments. They identify the import duty as a separate component of the retail selling price in their respective areas.
A government official had told PTI that the import duty concessions granted to Scotch whisky will not significantly impact the domestic market, as the reductions will be implemented gradually over a 10-year period.
According to industry body IWSR, some industry commentators are suggesting an up to 30% drop in on-shelf prices though the realistic saving is likely to be around 10% for bottled in origin (BIO) scotch. Also, the savings will not be apparent across states, and may not be passed on to the consumer, at least not in the short-term, it said. "FTA, as far as is presently known, does not remove any of the extensive red tape that characterises doing business in the Indian alcohol market. For instance, brands and labels will still need to register annually state by state, with licence fees paid. There are opportunities, but they will not necessarily be easier to access," Jason Holway, senior research consultant at IWSR told ET in May.
However, lower import duties on imported scotch may challenge local liquor brands in the premium and luxury space. Companies fear that cheaper scotch could erode the market share of Indian-made premium liquor. But not everyone is losing. United Spirits, India's biggest liquor company and part of the global Diageo group, could emerge as a big winner from this deal. That's because 32% of its sales already come from luxury and premium brands, many of which are imported Scotches bottled in origin.
Source Name : Economic Times