NEW DELHI, Mar 17, 2006 : ONE stern message the Budget 2006 has given to the EU and the Scotch Whisky Association (SWA) is that irrational pressure does not work. The Budget has not only summarily rejected their demand for reducing Basic Customs Duty from 150% but also proved that India would not yield to hollow threats to drag it to WTO on this issue.

In fact, if one takes into account the 4% CVD levied in this Budget, the total impact on Scotch imports will be an interesting hike of more than 10% in duty.

Prior to Budget the SWA had given its representation to the MoF for a duty-cut but had failed to explain the rationale for its cut as the prevailing rate of 150% is already WTO-bound rate. In fact, if one does a brief survey across the globe one may find several countries hiking duty on liquor imports. South Africa, Malaysia and many other countries have done it. Korea has rejected the demand to reduce duty. Rather it also collects 'health cess' on such imports. The WHO has also appealed against promoting usage of spirit except for wine and beer.

Then where is the logic for reducing duty on scotch? Why should India promote consumption of Scotch? Rather MoF should ask for a report on has Scotch manufacturers passed on the benefits of duty-cut to consumers in the past. A brief survey of prices of last 10 years and the duty cut since 1995 when the duty was 400% may reveal that not a rupee has been passed on to consumers. In other words, the entire duty-cut has gone to further unjustly enrich the bottomlines of these companies.

In fact, there are only two manufacturers who have monopolised the market to the extent of 80 % in Whisky segement and pocketed all the benefits of duty-cut. Worse, they have also not paid Customs Duty correctly to the exchequer and now fighting a legal battle. Thanks to lackadaisical attitude of the Revenue, the practice of 'provisional assessment' even today continues and the exchequer cotinues to lose huge interest. None seems to be interested in the Customs to recover the duty as early as possible.

Let's go back to the EU pressure story. The European Commission members visited India recently to probe the trade barriers regulation (TBR) complaint lodged by the EU wine and spirits industries. The Commission has been pressing India to allow greater market access to EU wines and spirits.

On the contrary, the IMFL (Indian made foreign liquor) lobby alleges that the SWA refuses to acknowledge Indian whisky, which is made from sugarcane molasses (in Europe, whisky is made from cereals). Surprisingly, it is learnt that some manufacturers of IMFL are also the members of SWA. In its budget wish list the IMFL had in fact demanded for a level-playing field for the domestic beverage alcohol industry, by retaining the current level of duty on imported bottled liquor.

As per a Study, foreign manufacturers enjoy all the advantages of economies of scale, subsidised agriculture imports and strong brand presence in the global market whereas Indian industry is still in early stages to tap global market and is already facing non-tariff barriers.

Going by the facts and economics it is certainly not desirable for India to reduce Customs Duty further.