Overview: India’s Directorate of Revenue Intelligence launched an investigation into Diageo and Pernod Ricard regarding the misclassification of bulk Scotch imports. The inquiry questions whether reduced 75 percent tariffs agreed in the India-UK trade pact apply to these concentrates.
The Full Story
Directorate of Revenue Intelligence searched the offices of Pernod and Diageo and questioned executives this month as part of an investigation into whether they misclassified imported products. The British government said “iconic UK products” like whiskies would benefit from the pact, yet Indian investigators have privately told companies the reduced rate does not apply to bulk Scotch concentrates. This creates the first significant dispute over the free trade agreement since it took effect.
In a letter to India’s commerce minister on Friday, the International Spirits and Wines Association of India wrote that the classification issue “risks undermining, in practice, an important market-access benefit negotiated and agreed between India and the United Kingdom”. A spokesperson for the British government said: “We are working with the government of India to resolve this issue to ensure UK businesses can export under the tariffs agreed in the trade deal.” Pernod, which counts India as its biggest market by volume, declined to comment. Diageo did not respond to a request for comment. Both told Reuters earlier this week that they were cooperating with Indian authorities carrying out the investigation.
Brand & Industry History
Whisky tariffs were a sticking point during the years of protracted negotiations leading up to the deal’s July 15 implementation, though India ultimately agreed to halve import taxes on certain Scotch imports from 150 per cent to 75 per cent immediately and to 40 per cent over 10 years. Import tariff disputes have long been a sore point for foreign investors in India, who have in the past faced demands for large amounts of back tax. Such disputes have embroiled the likes of Samsung and Volkswagen. Pernod faces antitrust cases in India and a $314 million back-tax demand from Indian authorities, who accuse it of undervaluing some imports. The company denies wrongdoing.
What This Means
ISWAI’s letter underscores the shockwaves the investigation has sent through India’s $65 billion alcohol market. Britain accounts for almost 75 per cent of India’s imported spirits, primarily driven by Scotch whisky, according to Crisil Ratings. Indian government inspectors have told companies they do not benefit from the reduced 75 per cent tariff on bulk imports of Scotch concentrates, which must be declared under a customs classification that attracts a 150 per cent duty. The association, which counts Diageo and Pernod’s Chivas Brothers as members, added the industry was “committed to working in partnership with the UK and Indian governments on the smooth implementation of the deal”, so its benefits are unlocked.
Consumer Takeaway
Pernod and Diageo import bulk concentrates, mixing them with other ingredients to produce hugely popular Indian brands like Royal Stag, Blenders Pride and McDowell’s. An urgent clarification could ensure market-access benefits negotiated by India and Britain are realised “while avoiding uncertainty and disruption for legitimate industry participants”, the letter said.
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