Indian Tax Cuts Could Set Off Wine Boom

27/06/2012 16:14 BST | Updated 27/08/2012 10:12 BST

A deal is coming this year that could see India significantly opened up to the wine investment market as Indian import taxes on alcohol could be slashed by as much as 73 per cent.

India and the European Union have been locked in talks to negotiate a free trade agreement since 2007 but after a number of setbacks it appears that a deal could finally be struck in the next few months that could have dramatic impacts on the wine industry.

The deal in question would see India decrease tariffs on imported alcohol in return for an opening up of the European markets to India.

Imported wines currently face a 150 per cent tariff in India as well as an Extra Additional Duty of four per cent, with those prices coming before the additional taxes imposed by India's individual states which range from 30 per cent to over 100 per cent. However the new agreement could see import duties slashed from 150 per cent to 40 per cent.

Wine has grown hugely in popularity in the BRIC countries (Brazil, Russia, India and China) over the last decade. In terms of consumption volume in Asia alone, it has grown 100 per cent in the past five years. A rapidly expanding middle and upper class has driven demand particularly for the premium brands, increasing the value of vintage labels.

Equally, a decade ago many believed that India's own wine production could grow to rival imports and satisfy the increasing demand for wine, yet the domestic industry has struggled to achieve this. Indian vineyards have fought to shake off their reputation for making poorer quality wine and as a result the industry has suffered. Some estimates suggest that in certain states 80 per cent of vineyards have disappeared in recent years.

As a result Indian wine imports have doubled to £17.8 million over the last two years and with the country's consumer markets expected to quadruple over the next two decades, the lowering of import duties could not come at a better time for investors.

Comparisons have been drawn between the situation and Hong Kong in 2008 which saw the fine wine market explode after import taxes were scrapped altogether. This time, however, the impact of the agreement will not be quite as dramatic, it is expected to have more gradual repercussions.

The changes will still be big for investors. We should not expect the market to explode like it did with Hong Kong but any drop in import duty will have a beneficial effect for the fine wine investment market. India is a rapidly growing market and the demand will only get higher with the proposed changes.

Wine has a rich history in India and the country has a real affinity with certain labels of Bordeaux such as Chateau Cos D'Estournel, the Chateaux grounds actually feature exotic pagodas and stone elephants, legacy of the founder Louis Gaspard D-Estournel, dubbed the Maharajah of Saint Estephe.

Vin-X's expertise and analytical approach allows us to predict individual labels which we believe will benefit from Duty changes in this particular case and similar scenarios where opportunities can be gained and advise investors accordingly.