INDIAN WINE INDUSTRY

Multiple aspects of Indian Wine Industry

Wine industry is in a nascent stage in India. Estimates suggest an enormous growth

potential of this sector. Both the indigenous wine making industry and the wine market of
India require equal attention for proper growth and expansion. We have definitely
reached an “inflection point” for this industry and therefore an overhaul in all dimensions
and forms seems inevitable. The growth in import, export and consumption suggests that
immediate steps are to be taken at national level to help this sector grow at a faster rate.

Let us outline the primary factors acting as constrain for this industry in India. At the
very outset we have four major issues to note: (a) legal aspect, (b) global aspect, (c)
social aspect and (d) promotional aspect. Though as a part of WTO commitments Indian
government has taken some positive steps to help the industry move smoothly but in
order to secure a massive growth in this sector planned and phased strategies should be
adopted. Let us raise each such issue in the discussion with all possible solutions.

Legal Aspect - The legal issues involve stringent laws and a plethora of duties and fees
such as excise duty, license fee, sales tax, brand/label registration fee, import/export fee,
vend fee, gallon age fee, turnover tax etc. The alcoholic beverages sector being a State
subject States/UTs frame their own policies and taxation regime. Rates of such
duties/fees vary widely from State to State. Though anyone can import wines into a
Customs Bonded Warehouse as no license is required for the same; thereafter, goods can
move either duty free (against a license from hotels) or duty paid to license holders after
paying the relevant customs duties. Wine is still clubbed with spirits for licensing and
taxation by all states and its production and marketing still subject to all the checks and
controls of the „license-permit Raj‟ that constrain growth of a healthy domestic industry.
The Government of India abolished quantitative restriction on the import of Bottled in
Origin (BIO) alcoholic beverages. It has brought down the bound rate to 150% on spirits
(The applied rate on wines and beers is at 100%) in terms of its commitment to the
Uruguay round in the mini budget of January 2004.The Ministry of Food Processing
Industries has also set up a working group comprising of the state excise commissioners
to draw up a policy for rationalization of taxes and developing a uniform excise policy.
Uniform Excise Code seems to be the inevitable step to make stringent and varied laws
standardized.

Global Aspect - There are 7 European companies in wine sector in India. India imports
around 3 million liters of spirit and 7500 cases of wine from Europe. French wines are
still the largest imported, but wines from Australia and California are making
strong inroads. The wine market is growing at 25-30 per cent a year, nearly three times
as fast as beer, whisky or rum, which together makes up 45 per cent of the total. Exports
currently make up about 10-15 per cent of total output. Seeing the rapid growth in this
sector India has to make the environment adaptable for the foreign players to venture
Indian markets and Indian companies to gain maximum advantage of the situation.

At the moment India produces only 8.35 million bottles per year. There is a huge
potential in Indian market itself. For export market, the increasing popularity of Indian
cuisine is an automatic opening. With more and more professionals visiting India on
regular basis, and the fact that Indian wine exports are going up every year, word is
getting spread very fast creating awareness of Indian wines in International market. What
the country needs now is set of rules and norms to monitor quality compliance so that
credibility of Indian wines as a product or brand is established.

Social Aspect - Wine is a complete lifestyle drink very much related to health which can
be an extension of the consumer‟s personality. Though most of the Indian consumers are
unable to relate themselves to wine but off late they have been able to associate with it.
Increasing awareness of wine as a separate drink other than spirits has made it more
socially acceptable. Increasing health consciousness and the increasing spend on
corporate and personal entertainment has given a boost to this sector. The increasing
awareness in Govt. authorities to encourage wine drinking compared to spirits has
certainly brought cheers to the companies in the sector.

The perception of wines as being up-market and sophisticated is helping in bringing

about this change. One sign of the changes happening is the emergence of Wine Clubs in
a number of cities. The per capita consumption in India is only 0.07 liter/person/year. The
biggest consumption up to 80% is however confined to major cities like Mumbai (39%),
Delhi (23%), Bangalore (9%) and the foreign tourist dominated state of Goa (9%), where
as Rest of India has only 20% consumption. Not only has the number of imported wines
increased exponentially, the Indian producers, too, have introduced a number of new
labels and wine styles. Approximately 38 wineries are presently operating in the country
with a total production of 6.2 million liters annually.

Promotional Aspect - Use of the mass media to promote alcoholic beverages is not
permitted, but in-shop advertising or on-premise promotions are allowed in all states
except Delhi. The lack of promotional activities for wine consumption in the country and
unfavorable rules for domestic marketing of wines except in few states has hindered the
proper growth of this sector. Certain promotional strategies, such as easing of tariff
barriers for the wines, developing awareness on health benefits of wine and to supply
good quality wines in reasonable prices in the domestic market should be emphasized.
 INDIAN WINE MARKET & CONSUMERS

Indian wine market is currently small, estimated at about 450-550,000 cases (9 liter), but
is growing rapidly at 20-25 percent per annum. Growth in the wine market is fueled by
20 million plus upper class Indians (2% of population) on increasing disposable incomes,
changing lifestyles, increasing foreign traveled professionals and improving quality of
local wines. An increasing number of health conscious urban Indians are eschewing
traditional heavy liquors (whisky/rum) in favor of wines. It is becoming fashionable to
serve and drink wine, especially amongst women. Today, serving wines at small
dinners/parties in the cities is becoming increasingly common in sharp contrast to few
years ago when wine was served on only special occasions (or when foreigners were
invited).

The Indian wine market currently stands at 4.6 million litres in volume terms and
Rs 450 crore in value terms.
The wine market is expected to grow to 8.3 million litres by 2010. Per capita
consumption of wine remains extremely low in India; however, there is growing
consumer interest in wine with a number of wine clubs opening in Delhi,
Chandigarh, Hyderabad and Bangalore.
Nearly 80 per cent of wine sales are accounted for by the major cities, especially
New Delhi, Mumbai, Chennai, Kolkata, Pune and Bangalore.
West India accounts for over 41 per cent of total volume sales of wine in India,
followed by North India, which accounts for 29 per cent of volume sales.
Nearly 90 per cent of wine sales are for still (that is, red and white) wines.
Sparkling and rose wines, in contrast, target select segments of particularly
affluent consumers.
In most states the sale of wine remains restricted to license off-and on-trade
outlets, which means a limited number of outlets selling wine.
Around 63 per cent of the volume sales of wine are through off-trade channel in
five-star hotels, pubs and bar-restaurants.

1. Wine consumption trends

The industry analysis shows that current consumption trends are favorable for the
domestic wine market, especially for producers of premium wines. Total domestic wine
consumption has increased each year since 2000. Overall wine sales have increased 25%
percent per year over the past five years. The dramatic growth in retail wine sales can be
attributed to the increasing popularity of premium wines amongst the urban Indians.

The consumption of wine is unevenly spread across the country. Although wine is sold in
around 20 cities in India, 4 cities namely Mumbai, Delhi, Goa and Bangalore contribute
to almost 70% of the total wine consumption. As per classification based on the type of
wine consumed, red wine has the largest market share (45% of total wine consumed).
White wine stands second with a market share of 40%, followed by sparkling wine (13%)
and rose wine (2%).

Experts attribute the growth in the premium wine market to the increasing disposable
incomes in the Indian economy, changing life styles, an increasing number of
professionals coming back to work in India, and a growing awareness of the health
benefits of wine - as well as the perception of wines as being up-market and
sophisticated.

2. Overview

The wine industry has witnessed a CAGR of over 25% over the last 3 years in the
premium wine segment mainly fuelled by the strong growth in the domestic wine
consumption.
The industry has low entry barriers because of its low capital-intensive nature
however the industry is under pressure for profits due to high marketing costs and
low volumes. With demand increasing at a steady pace, the industry is expected to
go through a consolidation phase.
The fortunes of the industry are linked to the trend in the changing drinking habits
of Indians, higher disposable incomes, growth in the foreign tourists, and
government regulations and policies.
There is a strong growth in the imported wine market with Indian importers
importing hundreds of brands from countries like Australia, US, Bulgaria,
California and many more.
Despite the prohibitively high duties in India, sales of imported wines have grown
from about 20,000 cases about seven years ago to about 1,20,000 cases now
Levy of excise duty on wines in India is the domain of the State government. The
excise rates thus vary across the country as each State decides the rates after
considering its revenue targets and other factors. While the excise duty on wines
has been exempted in some states like Maharashtra, it is very high in some others.
The customs duty on imported wines ranges from 150% to 175%.

3. Potential

There is immense potential for growth, with the growth of economy going up to 8
per cent, the middle class income booming and changing lifestyles, wine culture is
increasing more than ever as more Indians are exposed to western cultures and
producing wines in India as well.
As more foreign business delegates and tourists are visiting India, sale of wine in
hotels and restaurants is increasing rapidly.
With the government making concessions for wine makers, the wine market is
growing at 100 per cent on a CAGR. The growth may not be comparable to
international standards but in the Indian context it is very high.
The Wine market is expected to continue growing at 25% this year and sell
750000 cases in 2006-07
4. Import Market

Given the traditionally closed nature of the Indian import market, exorbitantly high
import duties, multitude of state taxes and complex state licensing/approval process, the
existing market for imported spirits, wine and beer is very small. The market for
imported wines is estimated around 150,000 cases with imports in Indian fiscal year
2006/07 (April/March) estimated at $ 10.6 million. The major suppliers are France ($4.0
million), Italy ($1.5 million), Australia ($1.2 million), U.S.A ($0.8 million), U.K.,
Belgium, Argentina, Chile and Germany.

Despite the high duties and other policy bottlenecks, there has been considerable interest
from foreign wine producers/exporters in the past few years. Compared to the presence
of about 10 imported brands a few years ago, between 70-80 brands are in the market
from countries like France, US (California), South Africa, Australia, Chile, Argentina.
Prominent of the Californian wines having a presence in India are E&J Gallo, Brown &
Forman, Constellation, Robert Mondavi and Kendall-Jackson wines.

For more information on the Indian market, I would advise you to refer to our reports (i)
Exporter Guide (IN7094), (ii) India Allows Partial Duty Free Imports to Hotels (IN3062)
and (iii) The GOI Abolishes Additional Duty --- (IN7059). These reports can be
accessed from our website www.fas.usda.gov, click on icon “Attache Report”, and then
type in the report numbers IN7094 in the select option 3.

5. Marketing/Distribution System

Marketing of liquor, including wine, is largely a state subject in India and imported wines
have to grapple with the highly controlled and complex domestic marketing and taxation
procedures followed in each state. Besides the phenomenally high import duty, every
state charges varying state excise duty (varies 30 percent to over 100 percent) and sales
tax and vending fee. The wine importers also face the challenge of procuring licensing
clearances for distribution and sales of wine/liquor in every state where they intend to
market. With each state having their own licensing procedure, it is a gargantuan task to
achieve clearance from the state governments in the targeted markets. Due to these
factors, imported wines have failed to make any significant appearance in the retail
market, remaining limited to luxury hotels and restaurants for in-house consumption (pay
state excise/sales tax) and diplomatic usage.

Most of the imported wines in India are marketed to hotels/restaurants directly by the
importer or exporter agent. Some of the importers/agents also directly market their
products to the diplomatic missions and foreign passport holders. The removal of QR's in
April 2001, and increasing awareness and exposure of Indian consumers about wines
have caught the attention of Indian liquor companies who are making efforts to
establish/strengthen their wine portfolios. Some companies have tied up with foreign
wine producers/exporters for importing and distributing their brands in India. A few
others have gone for importing bulk wines, and marketed as foreign wines bottled locally.
6. Market Entry Strategy

Given the high import duties and other taxes, the duty free import segment of the HRI
sector offers considerable strategic marketing opportunities to potential wine exporters.
U.S. firms should consider the following before selecting an importer/agent: (a)
determine which hotels chains are being serviced by the importer/agent; (b) recognize
that importers/agents with fewer principals often are more adaptable and committed than
those with big reputations; and (c) check the potential agents reputation through local
industry/trade associations, and other foreign companies. Please find attached a partial
listing of importers/distributors of spirits and liquor in India.

7. India Spells Big Business Ideas

Import of fine wine to India could well become a big business idea for global
entrepreneurs as the tastes of the country's fast-growing middle class are growing beyond
swanky cars and jazzy mobiles and now include a bottle of Chardonnay. Import of fine
wine to the country has emerged as one of the „12 best new business opportunities in the
world‟ compiled by a Fortune group magazine.

The Business 2.0 magazine, a part of global media giant CNN-Time Warner group, said
in the cover story of its latest issue that the increasingly refined tastes of India's
burgeoning middle class mean that the wine market in the country was set to grow ten-
fold over the next decade.

India has already become a Prime destination to start importing the US, Australian, and
other wine labels to satisfy the increasingly cosmopolitan tastes developing among its
people. Moreover, the wine boom would largely bypass the domestic brands as the
country is too hot for serious viticulture, it said. To top it all, the duties and excise taxes
on imported wine have been slashed considerably over the past two years. The magazine
noted that an American importer who gets in early and establishes a foothold would reap
the benefits of even lower duties down the road. While acquiring distribution rights is one
of the first requirements to start the business, the right selection of wines could also play
a key role.

The magazine quoted the experts as saying that fruity whites from California and
Australia, products that did well in the United States when wine took off in the 1980s,
should be on the top of the list. Also, one does not need an import license and anyone can
bring wine from abroad into a warehouse bonded by the nation's customs office.
]
INDIAN POLICY
1. Import Policy and Tariffs

Since April 2001, India has allowed imports of all alcoholic beverages, including wines,
under an open general license without any quantitative restrictions. However, imports of
all alcoholic beverages are subject to compliance with various mandatory requirements
and taxes/levies as stipulated by various state governments where the imported product
will be marketed.

The GOI through a notification issued on July 3, 2007, exempted wine from the
additional duty, which ranged from 20% to 75% depending on the CIF value per case (9
liters). Simultaneously the basic import duty on wine was raised from 100% to the WTO
bound rate of 150%. Consequently, total import duty on wines is 161.6 percent
advalorem. Earlier the import duties on wines were exorbitantly high ranging from 155
to 275 percent advalorem, with higher duties on lower value wines (see attached
worksheet). Under the new duty regime, import duties on cheaper wines has come down
significantly, but the duties on costly wines (more than $ 87) will effectively increase.

In May 2003 the Government of India allowed luxury hotels (3-star and above) and other
tourism sector providers exemption from the import duty on liquor and wine up to 5
percent of their average foreign exchange earnings over the preceding three years. The
entitlement for duty free imports offers a significant cost relief to the luxury hotel
segment, which has resulted in increased imports by this sector.

2. Storage Regulations

Imported wines and all other alcoholic beverages must be stored at a government
approved custom bonded warehouse or excise department bonded warehouse1. Wines
can be released from the bonded warehouse for distribution only after the
importer/distributor meets all the mandatory requirements of the state where they plan to
market the product.

3. Labeling Regulations

Bottled at origin (BIO) wines are subject to the labeling provisions of the Standards and
Weight and Measures (Packaged Commodities) Rule, 1997, when imported into India.
Compliance with this rule should be ensured before the import consignment is cleared by
customs.

The labeling declaration on a wine bottle should include:

1
Importers can keep the imported liquor in excise department approved warehouses after paying the import
duty. Normally, imported liquor is kept in the custom bonded warehouse, where it can be stored without
paying import duty upto six months, and are charged interest on custom duty if cleared after six months.
 1. Name and address of the importer.
2. Generic or common name of the packaged commodity
3. Net quantity in terms of standard units of weights and measures. In the case of
wine, the unit is milliliters or liters.

In addition, the Standards and Weights and Measures (National Standards) Rules, 1988,
prescribe that the alcoholic strength be declared on the label as a percentage of volume
with the symbol “% Vol”.

4. Other Regulations

The government of India has banned direct or surrogate (eg: sponsoring major sport
events, brand related promotions, etc) advertisement in the mass media for promotion of
consumption of liquor including wine.

Although the Bureau of Indian Standards (BIS) prescribes standards for various alcoholic
beverages, these specifications are not mandatory for imported products. Market sources
report that India does not impose any specified standard regarding approved composition
and additives for imported wines.

STATE GOVERNMENT REGULATIONS ON IMPORTED WINES

1. Marketing Regulations

Marketing of alcoholic beverages, including wine, is largely a state subject in India. The
state governments heavily depend on revenues from the liquor industry. Every state (29
in number) and Union Territory (8 in number) has its own excise policy on the
manufacturing and marketing of alcoholic beverages that includes warehousing,
distribution, retailing, and labeling and disclosure requirements. The state excise policy
is reviewed annually, and the State Excise Department monitors and implements the
excise regulations.

After the liberalization of imports of alcoholic beverages in 2001, several states have
come out with explicit excise policies for the marketing and distribution of imported
alcoholic beverages, including wines. However, there are some states (Tamil Nadu,
Rajasthan, Kerala, etc) that reportedly do not have a specific policy on imported alcoholic
beverages including wines. It is a gargantuan task to get licensing clearance for the
marketing of imported wine BIO in these states.

2. Wholesale/Distribution License

In several states, the importer/distributor either has to apply for a foreign liquor-
marketing license (FL-1 license) to the state excise department or market his wine
through an approved FL-1 licenseed distributor. For the FL-1 license, the licensee must
have a registered office in the state and meet other requirements that may vary from state
to state. The FL-1 licensee has to pay a fixed fee every year. In Karnataka, a state owned
entity „Karnataka State Beverage Corporation Ltd. (KSBCL)‟ that has monopoly
marketing/distribution rights, and the importer has to market all their products through
KSBCL.

4. Brand/Label Registration

The FL-1 licenses (importer or distributor) have to apply for the brand (and label in some
cases) registration with the state excise department for marketing the brand/label in the
state. The state excise department charges a fixed registration fee, and the registration
has to be renewed every year.

At the time of registration, the state excise department provides guidelines on specific
labeling requirements for sale. State specific labeling regulations may include –

1. „Alcohol Consumption is Injurious to Health‟ in English (and local language in some

states)
2. „For Sale in the state of xxxxxxx only‟.
3. Maximum Retail Price Rs. xxx.xx only.

Upon registration of the brand, the licensed wholesaler/distributor can market their
product in the state, either through government approved retail outlets or hotels and
restaurants that have license to serve liquor. In Karnataka, the importer has to apply to
the KSBCL for the registration of the brand.

5. Transport Permit

Upon receiving an order from a buyer (hotel or retailer), the licensed

wholesaler/distributor places a request for a transport permit or order with the excise
department to allow transfer of the specified quantity (no of bottles/ cases) of the product
from the custom bonded warehouse to the retailer/hotel.

The state excise department will issue the transport permit after receiving the payment of
state excise duty, vend fee, and other taxes as applicable in that state. Upon presentation
of the transport permit, the bonded warehouse will release the specified quantity of wine
to the retailer/hotel and the licensed distributors will transfer the product to the
retailer/hotel after paying the sales (value added) tax.

6. State Excise, Sales and other Taxes

Every state charges a different state excise duty or vending fee and sales tax. Although
exempted from central import duties, the hotels and restaurants have to pay the state
excise taxes and other duties.

In states that have adopted value added taxation (VAT) system, the VAT on wines is 20
percent plus the education cess on the sales prices. In addition, there is a central sales tax
of four percent if the liquor is stored in a custom bonded warehouse at one state and
marketed in another state.

Appendix 1: Specific Marketing Fees/Labeling Regulations for Imported Wine in Delhi

(Subject to change)

FL-1 License Fee: Rs. 200,000 per annum

Brand/Label Registration Fee: Rs. 3000 per annum
(Each label of a brand has to be registered)

Vend Fee: Rs. 150 per bottle (750 ml)

Labeling Regulations
“MRP Rs. xxx.xx”

Appendix 2: Specific Marketing Fees and Labeling Regulations for Imported Wine in
Maharashtra (including Mumbai): (Subject to Confirmation)

Recently, the Maharashtra government has announced a new excise policy for imported
liquor and wine. The foreign liquor and wine importers have to get an K-1 liocensee
besides the FL_1 license. There has been a change in Rate of special fee from Rs. 202
per bulk liter to 150 per cent of the assessable value. The label registration fee Rs. 5000
per label upto 10 labels.

FL-1 License Fee: Rs. 660,000 per annum

K-1 License Fee: Rs. 250,000 per annaum
Label Registration Fee: Rs. 5,000 per annum

In Mumbai, the city authorities charge an additional Octroi fee of 8 percent on the total
cost of the product (include CIF value, all duties and taxes and market margins).
Labeling Regulations:
“MRP = Rs. xxx.xx”
“For Sale in Maharashtra Only”.

Appendix 3: Specific Marketing Fees and Labeling Regulations for Imported Wine in
Karnataka (including Bangalore). (Subject to Change)

Brand/Label Registration Fee: Rs. 10,000 per annum

Literage Fee: Rs. 1.45 per bulk liter
Special Fee: Rs. 70 per bulk liter
Labeling Regulations:
“MRP = Rs. xxxx”
“For Sale in Karnataka Only”.
“ Consumption of Alcohol is Injurious to Health”.

Please note that KSBCL is the monopoly wholesaler/distributor in the state of Karnataka.
There is no specified policy for marketing of imported wines BIO in the state of Tamil
Nadu and therefore in Chennai. Whatever small quantities of foreign alcoholic
beverages, including wine, are available in Chennai through the gray market.