I ’ve written on several occasions about the adverse effects of irrational taxes being imposed on wines, and now have a first-hand example to quote.
Karnataka had, in October 2008, imposed a Rs 300 per litre (Rs 225 per bottle) tax on all wines brought into the state from outside (whether imported from overseas or produced in other states).
This was in retaliation to similarly high taxes imposed by Maharashtra on wines from outside that state — senior state officials I met promised that the tax would be rolled back if/when Maharashtra rationalised its own taxes.
Consequently retail prices of the wines affected rose by Rs 250/300 per bottle (after figuring in trade margins) — and these punitive taxes were imposed retrospectively, even on stocks already with the state-owned Karnataka State Beverages Corporation Limited (KSBCL). What happened?
In the following six months, from October 2008 to March 2009, sales of all domestic premium wines (that is, excluding cheap wines priced below Rs 100 per bottle) in Karnataka (mostly Bangalore) decreased 40 per cent, with sales of wines from outside the state falling by 58 per cent to some 1,300 cases per month (cpm). Surprisingly enough, sales of even wines made within the state fell by 4 per cent to 1,465 cpm; imported wine sales were also badly affected, falling by 31 per cent to about 900 cpm.
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So, a policy that ostensibly was meant to encourage wine consumption has ended up driving consumers away — the only beneficiary has been the local wine Kinvah, providentially launched in November 2008, whose volumes in these six months at 400 cpm were almost 50 per cent that of Grover’s (who seems to have had supply problems).
The government, of course, is not bothered and, in fact, would be laughing all the way to the bank as its revenues on wines would have more than doubled to nearly Rs 10 crore in this period.
However, such revenues are just a drop in the (state) bucket. Wines are already way too expensive in India and unjustifiably high prices will only drive consumers away — so what’s happening to wine in Karnataka and India is poor policy. Protectionism has never worked in favour of either industry or the consumer — witness the policies that gave us 50 years of Ambassadors and Fiats. Unfortunately, state taxes on wine in three key markets (Karnataka, Maharashtra and Goa) have all been hiked to ridiculous levels just at a time when consumer spending has been hit by the global economic recession — further compounding the meltdown.
Nobody ever got rich producing and marketing wine (remember that old joke about “How do you make a small fortune in wine?” Answer: “Start with a large fortune”) — the industry grows due to investments made by people who are already rich, and those investments are made because of the lifestyle attractions of the industry. But poor state policies make people think twice about investing in an industry bedevilled by high prices, low volumes and negative growth. That’s not just poor policy making, that’s plain stupidity.
Wines I’ve been drinking
Le Eres Cellar Joan Simo 2005, Priorat, Spain made from old-vine Carinena and Grenacha (with a bit of Cab) — a bottle I bought back from my visit to the winery in February. It’s an amazing wine, with an intense, complex aroma of plums, mulberry, chocolate, coffee and liquorice. An off-dry wine (despite 14.6 per cent alcohol) with low acidity — full bodied, with loads of fruit and chocolate on the palate, and a long, lingering aftertaste. Yummy! I gave it 96 points.