India-UK F&B trade: A case for Scotch Whisky

While discussing greater market access for F&B products in the UK, India should consider improving market access for Scotch Whisky, which dominates the UK’s beverage exports to India. A phased approach to tariff rationalisation will help address concerns of the domestic industry and also improve local production, which can in turn then also be exported.

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Amidst the global uncertainties of coronavirus (COVID-19) pandemic, growing protectionism and supply chain disruptions; the India-UK trade and economic relationship saw a renewed thrust with the signing of the Enhance Trade Partnership (ETP) in February 2021 between the Honorable Commerce Minister of India, Shri Piyush Goyal, and the UK Secretary of State for International Trade, Ms. Elizabeth Truss.

This is the first step towards a potential comprehensive free trade agreement between the two countries. The two sides are also reviewing the sectors of bilateral trade interest and examining each other’s priorities and trade sensitivities. There is a likelihood of an Early Harvest or Interim Agreement on preferential basis. Food and drinks will be a key sector for the trade discussions between the two countries, whether it is an early harvest or a comprehensive trade agreement.

India is one of the largest producers of a number of agricultural commodities and held the 13th rank (US$ 31,226 million) in exports of foods products in 2019. Its share in global exports increased from 2.01% in 2015 to 2.23% in 2019. India exports a wide range of products from crustaceans, rice, tea, spices to a number of fruits and vegetables and the UK is one of its key markets.

Opportunity for Indian Exporters

The India-UK trade agreement offers huge opportunity for Indian exporters to enhance their market access. The UK is one of the largest importers of food and drinks globally and held the 5th rank (US$ 59,211 million) in 2019. Its share in world imports increased from 4.07% in 2015 to 4.14% in 2019.[1] Post-Brexit, the UK has focused on countries such as India, and Indian exporters and policymakers need to tap this opportunity.

In 2019, India had a positive trade balance of US$ 475.30 million in food trade with the UK and its trade with the UK had increased from US$ 479.97 million in 2009 to US$ 873.72 million in 2019 (i.e., 82.04%). In the same year, the UK was India’s 12th largest exporting partner (share of 2.16%) and was ranked 17th among the importing partners (share of 1.09%). India was the UK’s 22nd largest exporting partner (0.8% share in value of UK exports) and was ranked 16th among UK’s importing partners (with a 1.2 percent share). Thus, much of the bilateral trade potential remains untapped, and this needs to be addressed through the ETP.

Border controls, standards and suppressed spirits!

A key area of concern is that the UK’s share in India’s trade with the world has declined between 2009 and 2019, due to multiple barriers on both sides. A number of food items that are exported to the UK are stopped at the border for not meeting food safety standards. For example, data from the RASFF (the Rapid Alert System for Food and Feed) portal of the European Union shows that the UK had 34 notifications in 2020 on sanitary and phytosanitary (SPS) issues for food and drink products imported from India.

Focusing on India’s imports, over 88% of the UK’s F&B exports to India in 2019 were constituted by ‘Ethyl alcohol, undenatured; of an alcoholic strength by volume of less than 80% volume; spirits, liqueurs and other spirituous beverages’ (HS 2208), which substantially consists of the product more commonly called Scotch Whisky!

Within this, the customs tariff rate was 150% in 2019 for Scotch Whisky bottled in the country of origin and for Bulk Scotch Whisky imported for bottling in India, which has been the major concern for the UK. India also imposes a tariff of 150% on intermediate products, namely ‘Undenatured Ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher (HS code 220710), which is used for blending with production in India.

This duty adversely affects value addition in India and ‘Make in India’. It is the single largest area of concern for the UK food and drinks exporters, and unless tariff is rationalized in this sector, the UK may not agree to India’s demand in food and drinks, given that in trade agreements, reduction in barriers is reciprocal, we have to give something to get something.

To understand how big the issue of high tariffs in the alcoholic beverage sector is, we first examine the alcoholic beverage trade flows, then focus on tariffs, probable reasons for the tariffs and their likely impact and then look at the cost and benefits of tariff rationalisation.

India’s Alcoholic Beverage Trade: Global

India exports around US$ 300 million worth of alcoholic beverages to the rest of the world, which contributes around 0.9 to 0.12% of India’s total exports. There has been some decline in exports in the last quarter of FY 2019-20, due to the COVID-19 related lockdown.

India has allowed 100% FDI in production and a number of subsidies and other incentives are given for food processing in India through the central government schemes. Some states like Maharashtra (for wines) also facilitate domestic production through lower excise duties and higher inter-state taxes. Producers based in India are dependent on both domestically sourced raw materials and imported raw materials for their production.

Figure 1 shows that in recent years, trade has shown some fluctuating trends. In 2019, United Arab Emirates, Netherlands and Singapore were India’s top three export destinations, and the US, the UK and Singapore were the three countries from which India imported alcoholic beverages or its raw materials/intermediate products.

 

Note: *Data for FY 2020-21 is available for April 2020 to January 2021
Source: Extracted and Compiled from Export-Import Data Bank, Trade Data Statistics, Directorate General of Foreign Trade, Ministry of Commerce and Industry. Available at
https://tradestat.commerce.gov.in/eidb/default.asp (last accessed on April 16, 2021)

India-UK Trade in Alcoholic Beverages

In the FY 2015-16, imports from the UK by India accounted for almost 72% of total alcoholic beverages imported by India, which declined to around 45% in FY2019-20. On the other hand, exports of alcoholic beverages from India to UK have increased manifold; from 0.51% contribution in FY 2015-16 to over 2% in FY 2020-21. While the UK side has done a number of studies examining the trade potential and trade barriers, from the Indian side there are hardly any studies on exports to the UK and export barriers, and this gap needs to be addressed.

Across different sub-categories of alcoholic beverages, the UK is a major supplier of whisky and raw materials for whisky production. In FY 2020-21, the UK accounted for more than 70% of India’s total whisky imports, as shown in Table 1 below. The UK is the top source country for whisky imports into India.

Table 1: Whisky Imports from the World vs UK

8 digit
HS Code
Imports 2019-2020 2020-2021 (Apr-Jan)
World UK World UK
22071011 CONCENTRATES OF ALCHLC BVRGS-RECTIFIED SPIRIT 0.02 0.01
22071019 OTHER RECTIFIED SPIRIT 0.16 0.3 0
22071090 OTHR SPIRIT OF UNDENATRD ETHYL ALCHL 1.26 0.37 1.34 0.31
22082012 *LIQUORS IN CONTAINERS HOLDING 2 LTR OR LESS 0.37 0.17
22082019 OTHER SPIRITS IN CONTAINERS HOLDING 2 LTR OR LESS 6.42 0.01 2.13 0
22082092 *LIQUORS IN CONTAINERS HOLDING MORE THAN 2 LTR 0.91 0.13
22082099 OTHER SPIRITS IN CONTAINERS HOLDING MORE THAN 2 LTR 1.58 0.06 0.65
22083011 BOURBON WHISKEY IN CONTAINERS HOLDING 2 LTR OR LESS 7.59 2.35 1.07
22083012 SCOTCH IN CONTAINERS HOLDING 2 LTR OR LESS 66.63 30.88 13.38 10.17
22083013 BLENDED WHISKEY IN CONTAINERS HOLDING 2 LITRE OR LESS 39.17 37.05 32.27 28.54
22083019 OTHER WHISKEY IN CONTAINERS HOLDING 2 LTR OR LESS 62.09 32.84 16.15 10.87
22083091 BOURBON WHISKEY IN CONTAINERS HOLDING MORE THAN 2 LTR 0.11 0
22083092 SCOTCH IN CONTAINERS HOLDING MORE THAN 2 LTR 6.9 4.75 3.34 2.65
22083093 BLENDED WHISKEY IN CONTAINERS HOLDING MORE THAN 2 LTR 25.35 23.96 20.78 20.6
22083099 OTHER WHISKEY IN CONTAINERS HOLDING MORE THAN 2 LTR 10.16 4.82 1.94 1.35
22087011 LIQUEURS IN CONTAINERS HOLDING 2 LTR OR LESS 7.55 1.37 4.19 0.15
22087012 CORDIALS IN CONTAINERS HOLDING 2 LTR OR LESS 0.01 0.01
22087091 LIQUEURS IN CONTAINERS HOLDING MORE THAN 2 LTR 0.05 0
22087092 CORDIALS IN CONTAINERS HOLDING MORE THAN 2 LTR 0
22089012 INDENATURED ETHYL ALCOHOL IN CONTAINERS HOLDING 2 LTR OR LESS 0.01
22089019 OTHER IN CONTAINERS HOLDING 2 LTR OR LESS 9.88 9.86 0.05 0.03
22089099 OTHER IN CONTAINERS HOLDING MORE THAN 2 LTR 61.77 14.44 45.36 27.32
Total Import of Whisky (World and the UK) 307.99 163.07 142.96 101.99
Percentage Share of Whisky Imports in Total Imports of Alcoholic Beverages 82.57 96.78 83.01 97.45
Total Imports of Alcoholic Beverages 373 168.49 172.23 104.66

* Data for FY 2020-21 is available for April 2020 to January 2021
Source: Extracted and Compiled from Export-Import Data Bank, Trade Data Statistics, Directorate General of Foreign Trade, Ministry of Commerce and Industry. Available at
https://tradestat.commerce.gov.in/eidb/default.asp (last accessed on April 16, 2021)

Tariff Barriers and a Roadmap for Tariff Rationalisation: Key Findings of the Survey-based Study

A pan-India survey-based study by the authors found that not only the UK but other alcoholic beverage exporting countries/economies such as the USA, EU and Australia are extremely upset with the high 150% tariff imposed by India and would like that to be reduced through their respective trade agreements.

The UK has specifically focused on high tariffs for Scotch Whisky bottled in the UK and on Bulk Scotch Whisky imported for bottling and blending in India. The study also found that India has developed substantial domestic manufacturing capacity and has export potential in this sector. The findings showed that imported final products account for less than 1% of the domestic production and even if tariffs are reduced, the bulk of consumption in the country would continue to be locally produced whisky.

Given the concerns of the UK, the Honourable Commerce Minister Shri, Piyush Goyal at the CII’s India-UK Annual Conference in September 2020 pointed out that he is happy to address the UK concerns and stop the spurious liquor market. Following this the Union Budget of 2021-22, brought down the basic customs duty (BCD) to 50 per cent, but introduced an Agriculture Infrastructure Development Cess (AIDC) of 100 percent, which maintained the BCD+AIDC at 150 percent, the same as previous tariff levels.

While cess of any kind is not generally considered as a duty of Customs, Section 115(1) of the Finance Act 2021 refers to AIDC as a duty of Customs, and hence the UK policymakers can take it up during the discussions with their counterparts in the Indian Commerce Ministry. Tariff rationalization may be perceived as a loss of revenue, but the experience in other countries like China has shown that the resultant increase in sales has resulted in a manifold increase in the contribution to the exchequer. As India plans to engage in trade agreements with partners like the UK, EU, USA and Australia, it is in India’s interest to draw a roadmap for tariff rationalisation.

Tariff rationalisation can be carried out in a phased manner so that it does not hurt the domestic industry and helps to develop and improve local production, which can in turn then also be exported. While India is a small exporter of alcoholic beverages, exports are rising, and can grow if there are no restrictions on the cost of intermediate products.

Therefore, the tariffs on intermediate products can be immediately brought down to zero at the time of implementation of the Early Harvest to support production and value addition in India. For spirits imported in bulk which are then blended and bottled in India, and spirits bottled in origin (BIO), tariffs can be brought down to zero from the present 150% in a phased manner within 3 years of the implementation of the agreement. In addition, India needs to phase out the AIDC cess of 100% in three years. To safeguard the interest of domestic producers, India may put in a threshold limit, or a product price, only beyond which the import tariff will be reduced.

This will ensure that domestic products will not face price competition from imports, once the tariff is zero. Such a tariff rationalisation strategy, focusing only on liberalisation of premium products and intermediate goods will, on the one hand, protect the domestic industry, and on the other, enable India to seek reciprocal market access in products of its export interest, both within food and drinks, and in other sectors like apparel.

Given the current geo-political tensions with China, and the coronavirus related supply chain disruptions, India needs to start preparing for trade discussions with key markets such as the UK and move towards a mutually beneficial trade agreement, which offers a transparent environment for businesses to operate and grow.

[1] According to ITC Trade Map, which calculates data on the basis of UN Comtrade data.


Dr Arpita Mukherjee is a Professor at ICRIER. She has several years of experience in policy-oriented research, working closely with the Government of India and policymakers in the EU, US, ASEAN and in East Asian countries. She has conducted studies for international organizations such as ADB, ADBI, ASEAN Secretariat, FCO (UK), Italian Trade Commission, Konrad-Adenauer Stiftung (KAS), OECD, Taipei Economic and Cultural Centre (TECC), UNCTAD and the WTO and Indian industry associations such as NASSCOM, FICCI, IBA, IDSA and EICI. Her research is a key contributor to India’s negotiating strategies in the WTO and bilateral agreements. Eshana Mukherjee is Research Assistant at ICRIER.

The authors can be reached at arpita@icrier.res.in and emukherjee@icrier.res.in respectively. Views expressed are personal.

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