'Free trade agreement' prospect for whisky in India By Douglas Fraser

BBC Scotland Business and Economy Editor Published duration 23 January 2012

image caption Whisky is subject to a significant import duty in India at the moment

The Scotch whisky industry is in for a pleasant surprise on exports to India, according to the country's chief trade negotiator.

Dr Rahul Khullar, also the commerce secretary in the New Delhi government, told BBC Scotland there was a "very strong" prospect of a free trade agreement this year.

However, it may take six to eight months to sign off.

Dr Khullar also expects India to embark on a new round of economic reforms.

These would come 20 years after the last round reduced heavy regulation and began the process of putting it onto its current fast growth path.

The official said the trade summit between the European Union and India on 10 February would give a "loud and positive" signal on a trade deal.

With whisky and other wines and spirits now facing a 150% import duty, he said the scale of the cut would be "surprising", and the Scotch whisky industry could expect "very good news".

Market access

A breakthrough on trade is also likely to mean cuts in tariffs across a wide range of products and services, including European car exports, law, finance and accountancy.

In return, Indians expect to see easier access to markets for agricultural produce, and relaxed rules on work permits for its IT workers when they are needed in Europe to service the technology contracts won by Indian companies.

A breakthrough on whisky has been strongly resisted by Indian distillers, and those close to the negotiations say there may be a tiered duty level, protecting India's cheaper whisky, but reducing the cost of premium Scotch.

The EU has sought a 20% tariff, but it is more likely to get the lowest tier down no further than 40%.

One reason why India is so appealing to Scottish distillers is that it already has the world's largest whisky market. Indians consume 250 million cases of "Indian made foreign liquor" per year, only 1% of which is imported.

That's in addition to 210 million cases of cheaper, unbranded "country liquor". And Scotch whisky has status for India's growing middle class.

EU-Indian summit

Asked about Scotch whisky tariffs, Dr Khullar told BBC Scotland: "There's very good news on that front. We've structured a deal which will be really good on both wines and spirits, and the primary beneficiary on the spirits side will be Scotland.

"India is a large market for spirits, and the drink of choice is whisky, so scotch has a huge premium and market here, and I think you will get a lot of good news when we actually sign off."

image caption The drink market is made up of cheaper Indian 'whisky' and premium Scotch

On the trade talks more widely, he told BBC Scotland: "We're in the last round of negotiations. I have a couple of things to tie up and then I will need to get a mandate and an authorisation, because what Brussels is asking me for, today, is beyond what I have an authorisation for. I have got to get a mandate before I can make any commitments.

"Equally, I have been able to negotiate things for myself, which I have got to report back to the trade and economic relations committee. The EU-Indian summit will be held on the 10th of February, and right now we're keeping our fingers crossed if we can get things stitched up by then."

He added: "My sense is that you're not going to see a deal being signed. One is that some issues are still open. More importantly, even after we do a deal, even after negotiations are completed, the deal cannot be signed until it's negotiated with the European government - which means after negotiations are completed, the legal texts will be prepared, those have to be translated, and then circulated to parliaments. That takes six to eight months.

"So if you're looking for a deal being signed on February 10, it ain't going to get done. But if you're looking for signals as to where we are in terms of the negotiation, I think you'll get a very good and loud signal as to where we are."

Asked if it would be a positive signal as well, Dr Khullar replied: "Most definitely."

'Crucial phase'

The commerce secretary also indicated there was a strong prospect of a new round of economic reforms, following the decline of the growth rate in India during last year.

"You have started seeing winds of change," he said, citing a recent announcement to allow in foreign supermarket chains.

"There are clear indicators that something is going to get done on aviation, and sooner rather than later," he added. "And there are lots of things in the pipeline.

"We have got what we wanted from the first wave of reforms. It pushed up our growth rate, it delivered on lots of things. I think a second wave has got to start, and my sense is that when those elections going right now are over and done with, that is when you will start seeing hopefully a spate of new reform."

Several regional states go to the polls next month, with results due on 6 March.