India’s trade agreement with the United Kingdom is facing an early challenge over the import duty on Scotch whisky. An industry group representing Diageo and Pernod Ricard has argued that India’s decision to exclude bulk Scotch concentrate from the reduced tariff contradicts the agreement’s terms. The deal, which came into effect on July 15, followed years of negotiations, with whisky duties emerging as a major sticking point. India had agreed to cut tariffs on certain Scotch imports from 150% to 75%, with a further reduction to 40% over the next decade.
DRI Searches Company Offices
According to a Reuters report, India’s Directorate of Revenue Intelligence (DRI) searched the offices of Pernod Ricard and Diageo this month and questioned company officials. Investigators are examining whether the companies incorrectly classified imported products to benefit from lower duties. Officials have reportedly indicated that the reduced 75% tariff does not apply to bulk Scotch concentrate and that these imports should instead fall under a category attracting a 150% duty. The dispute has emerged as a significant trade issue since the agreement took effect.
Industry Warns of Weakened Trade Benefits
In a letter to India’s commerce minister, the International Spirits and Wines Association of India (ISWAI) warned that the classification issue could undermine the market-access benefits negotiated by India and the UK. The association argued that the agreed preferential tariff rates might become unavailable for these imports unless the matter is clarified. ISWAI declined to comment publicly on the letter, while India’s commerce ministry did not immediately respond to requests for comment. Pernod Ricard and Diageo have previously said they are cooperating with the investigating authorities.
UK Government Seeks Resolution
The British government has said it is working with Indian authorities to resolve the dispute and ensure UK businesses can export under the tariff arrangements agreed in the trade deal. Import-duty disagreements have previously created uncertainty for foreign companies operating in India. Businesses including Samsung and Volkswagen have faced tax-related disputes. Pernod Ricard is also dealing with separate tax and competition-related matters in India. The company has denied wrongdoing in connection with allegations that it undervalued certain imported goods.
Major Implications for India’s Alcohol Market
The dispute could have significant consequences for India’s alcoholic drinks industry, valued at around $65 billion. According to Crisil Ratings, the UK accounts for approximately 75% of India’s imported spirits, with Scotch whisky making up a major share. Diageo and Pernod Ricard import Scotch concentrate in bulk and blend it with other ingredients to produce popular Indian-market brands, including McDowell’s, Royal Stag and Blenders Pride. The companies reportedly believe the reduced tariff should apply to their imported concentrate.
Scotch Industry Calls for Clarity
The Scotch Whisky Association has stressed that bulk imports are important to the success of Scotch whisky in India. It has also urged both governments to uphold the central principles of the trade agreement. The association, which includes Diageo and Pernod Ricard subsidiary Chivas Brothers, said the industry is committed to working with both governments to ensure the agreement is implemented smoothly. A clear resolution could help reduce uncertainty for businesses and determine how the negotiated tariff concessions will apply in practice.
