Despite, the efforts of EU to sort out differences in the excise duty structure and prevent a potential conflict at the WTO, Maharashtra does not seem to be perturbed and is choosing the collision path with the world body, though the government of India may have to bear the brunt of it eventually.
Maharashtra's political lobby, which has sought protection for its fledgling wine industry and the vast pool of grape farmers, is unlikely to budge, says a report in ET.
At the heart of the conflict is Maharashtra's differential excise duty structure for imported wines and Tamil Nadu's resistance to open up the local market for international spirits and wines. According to the Indian Constitution, states are free to form their own excise and sales policies for alcohol distribution with a clear mandate to try and discourage the use of alcohol.
While Tamil Nadu restricts the sale of imported wines and spirits, Maharashtra's case is different. It is the biggest consumer of wines and spirits cornering a whopping 40% share of the total market (before the new excise regime was put in place in November 2008 anyway). Being the biggest producer of Indian wines with over 94% of country's production, it has a system of preferential treatment with locally-bottled wines being exempt from excise duty. Wines brought into the state from overseas or other states are taxed at 200% on manufacturing cost (Indian wines have been paying 150% additional duty since 2001), leading to a substantial difference in the price that consumers pay.
An EU team is scheduled to arrive in the second week of November for discussions with commerce ministry officials. The talks take place after the Scotch Whisky Association (SWA) and the European wine industry moved a fresh complaint recently regarding trade barriers on imported or bottled-in-origin (BIO), spirits and wine brands in India
Last week, SWA chairman Gavin Hewitt met commerce minister Kamal Nath to complain about the lack of fair market access in key states ahead of this meeting, according to the said report.
Hewitt was apparently optimistic after meeting the minister, regarding the issue of market access to Tamil Nadu, but said he would not be surprised if there isn't a any immediate agreement on Maharashtra's differential taxation on wines. While the Central government may be able to pressurize Tamil Nadu to allow access for imported spirits and wines, local political compulsions may force Maharashtra to back the existing duty structure favouring local wines.
Grover Vineyards has been directly hit for years as his winery is in Karnataka. In a move aimed mainly at Maharashtra and to encourage wine production in the state, Karnataka has announced an encouraging wine policy in the state recently, which also slapped an additional duty of Rs 300 per bulk liter on imported wines from overseas as well as other states. This has upset the producers of Maharashtra whose wines will become expensive and the consumers of Karnataka who suddenly find themselves obliged to drink only Grover wines due to the higher price differential.
Delhi had also imposed a higher duty based on the MRP of wines, which was to be effective from April this year but due to political pressures had decided to shelve the proposal aside for the time being.
Almost all the producers in Maharashtra claim that the state policy is anti national. They would like to see some sort of protective duties on the cheap imported wines but have no conflict if the duty on better quality and expensive wines is reduced as it does not affect their sales. They are very upset with Karnataka's reciprocal policy as it has short term and long term negative connotation. EU and WTO, of course, would want to ensure that the Government of India meets the promises that it has made while signing the treaty in the early nineties.
The central government had reduced the customs duty last year to a net of 150% (though in practice it works out to be about 160% when one includes the assessment charges, Special refundable Additional Duty of 4% and the educational cess which is imposed on all imports). The government can justify this duty falling within the WTO outer bound limit, but the stand taken by EU is that the total taxes should be within the limit.
The government may not have a winning hand against the EU stand, this time around.
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