There is an urgent need to bring about development in the domestic wine industry in order to make it more competitive in the global market  The Indian wine industry is reeling. Despite growing interest in wine on part of consumers, installed production capacity far exceeds demand, by a factor of three at least. Clearly, overcapacity is endemic and most producers are panicking. Rosy forecasts are inevitable in India given the twin lures of low baseline and large population. It is easy to base forecasts on early factory shipments, most of which go into stuffing the channel, rather than on actual consumption. Sometimes that works.
Maharashtra is the wellspring of India’s wine industry and the epicentre of the shock waves. Scores of wineries, most of which sprouted in the last 5 years, took advantage of the state’s subsidies. Eager banks also bought into the hype and provided low interest loans.
Plaguing issues
While the global economic meltdown contributed to the precipitous drop in wine consumption (although consumption of hard spirits soared), other problems were fermenting below the surface. Wine makers did not realise till too late that wine does not have a wide consumer base in India. As unsold wine accumulated on retailers’ shelves and in fermentation tanks, desperate measures in the form of extravagant retailer ‘schemes’ were undertaken. Quality, never a focus and always an elusive goal, suffered further. The industry is now stuck with a large inventory that is slowly rotting in tanks.
Realising that much of the industry it stimulated is in dire straits, Maharashtra has stepped in again to resolve the issues plaguing the industry. However, it does not do much to improve quality and bolster demand. Except for a few players, the wine industry is in danger of being a ward of the state. The government is required to encourage market making, not production; it should force quality improvement.
Wine producers, too, have to face some hard truths. Marketing to create demand costs resources. A rule of thumb is to invest just as much in marketing over the first 5 years as you did while building a manufacturing plant. Matching funds, which imply expenditure on part of wine producers for marketing would be ‘matched’ by the government, would supplement funds expended by the manufacturers, thereby increasing the total funds available for marketing activities.
If Maharashtra really wants to take the long view, then the state should forgo revenue recognition until the industry is well established. Although, there is an initiative to reduce value-added tax (VAT), it is an after-the-fact approach that benefits the sellers; it is unlikely that consumers will see a reduction in the price hurdle. Rather, it might be more interesting to declare either a seasonal or semi-permanent consumer ‘tax holiday’ to stimulate consumption.
Short-sighted and ultimately destructive inter-state protectionist policies that inhibit wineries from expanding nationally should be repealed. Karnataka imposes Rs 300 per bulk litre excise duty on out-of-state wine. Not to be outdone, Maharashtra imposes 200% duty.
Moreover, India imposes stiff customs duties on imported wine. States add additional levies. All this coddles the home-grown industry. However, an unconditional dismantling of this duty structure would be imprudent. Foreign governments would be happy to drain their ‘wine lakes’ into India through export subsidies. Instead, duty reductions should be contingent on foreign investment in plant, equipment and expertise.
Girish Mhatre, founder of Good Earth Winery, a small-sized wine manufacturer and exporter based in Pune |
