India’s domestic whiskey industry difficult to tap

India’s domestic whiskey industry difficult to tap

India remains the world’s largest consumer of whiskey, an industry worth about $10 billion. Foreign whiskey brands, however, have struggled to capture the market due to a complicated federal tax structure, high import duties and policies favoring domestic producers.

With more than 550 million votes cast in an election that spanned from April 7th to May 12th, India has finally chosen a victor. The country, its new ruling Hindu nationalist Bharatiya Janata Party (BJP), and new prime minister  Narendra Modi will face problems including but not limited to slowed economic growth, energy poverty, poor infrastructure, endemic corruption, and a foreign policy that has been at best adrift. India has struggled to stay in keeping with the demands and needs placed upon the country as a rising power.

While perhaps not high on that priority list, one problem confronting India is that of whiskey, specifically the demand and supply of it. With a typically fractious and contentious election cycle and the largest democratic elections in history with a turnout of over 65%, citizens of the South Asian power may very well want to celebrate or if they were supporters of the Congress Party, perhaps celebrate that the expected is at the very least, over.

India’s surprising role as the worlds largest whiskey consumer

The whiskey market in India is worth about $10 billion. Indeed, India is the largest consumer of whiskey in the world. Some estimate that 200 million cases of whiskey alone are consumed in the country, with only an estimated one million cases being of foreign import. Half of spirit sales come from whiskey alone and with millions of young Indians reaching drinking age each year, the spirits market itself is growing by 10 percent each year.

Reasons for this consumption vary considerably and include a rising middle class, the legacy of British colonialism and its culinary heirs, a natural pairing with Indian dietary staples, and the considerable soft power advertising strength of Bollywood.

While demand for the spirit is ever-growing, considerable problems face the industry in India. These problems are in many ways a microcosm of issues facing the country itself.

India has historically had extremely high import duties on foreign whiskey, which have allowed domestic players to dominate the industry. As was their intent, this policy enabled local producers to grow and thrive, in large measure predicated on growing demand. Yet with a growing middle class and ever increasing demand, tastes in India are also beginning to demand something different.

Much of the domestically produced and sold whiskey is made with sugar cane and/or molasses instead of grain which prevents exports from being labeled as whiskey in markets such as the European Union, with Indian producers often having to settle for the label of rum or some other spirit.

Foreign whiskey firms faces barriers to market access

It is not just taste which many Indian consumers are after; foreign whiskey brands are often being considered aspirational drinks meaning both the purchase and ownership of some brands and types of whiskey are thought to confer a certain class status. Given both the long-held import of class status in Indian society and one of the worlds’ fastest growing middle classes, this is no small thing. Aspirational drinks begin to take on even greater importance.

Foreign companies seeking to make inroads into India’s burgeoning whiskey market face some significant problems. The import duties can be as high as 150 percent, which is crippling and prohibitive to many companies. Adding to the problems are the long-held dominance of domestic producers which have had not only economic advantages, but the advantage of having cornered the market for so long and thus being more familiar with areas such as advertising, distribution, and other areas.

Additionally, India’s complicated federal structure, with its myriad of tax codes, regulations, and restrictions that vary considerably in each of its 28 different states, presents a host of headaches for those seeking to break into what could be an extremely lucrative market. Factoring in often poor infrastructure, costs associated with corruption and getting goods to market in rural areas, the foreign whiskey industry faces not inconsiderable costs of doing business that are in many respects similar to what many other foreign businesses face in India.

What then is the current outlook for foreign whiskey in the South Asian nation? The worlds’ biggest whiskey producer, Scotland, saw an uptick of 18 percent from the previous year in 2012. The sheer volume of the market has much to offer with India being called a ‘number one priority’ by the CEO of the Scotch Whisky Association.

Yet the massive 150 percent tariff remains a significant hurdle. The future of whiskey in India may depend on the outcome of stalled trade talks with the EU. Signaling an unwelcome escalation in attitudes, the Indian Food Safety and Standards Authority has recently placed a hold on some imported spirits citing labeling concerns.

In many ways, the problems of protectionist attitudes and added costs of doing business that face the industry are emblematic of problems facing growth in the country itself. As the new Prime Minister seeks to confront them, he may very well want to pour himself a drink. In the meantime, however, it is very likely that it will be Indian-made foreign liquor (IMFL) – not the foreign whiskey many of his countrymen and women are now craving.

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini’s EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.