Tendering for duty free supplies of alcohol

The tourism ministry is all set to introduce a tendering process for procurement of alcoholic beverages sold through Indian Tourism Development Corporation (ITDC's) duty-free shops at all international airports in the country. This move has been triggered by alleged irregularities in ITDC's purchase of alcohol from multinational Diageo.

According to ITDC's new Chairman and Managing Director Rajeev Talwar, the PSU, from now on, will adhere to a tendering process to identify the lowest bid before procuring alcohol. ITDC has been buying alcohol directly from manufacturers.

The tourism ministry's decision to black out the Diageo's Johnnie Walker brand of whisky from the duty-free shops is estimated to result in an annual drop in sales to the tune of Rs 85 crore for ITDC. Johnnie Walker is the most popular brand of foreign whisky in India, accounting for nearly 80 per cent of the liquor sold by duty-free shops.

According to ITDC's internal assessment, the sale of Diageo products through duty-free shops fetched the PSU an average monthly income of Rs 7.5 crore, which was roughly 50 per cent of its total revenue.

The move will also hurt Diageo as these sales form a significant part of its earnings in India. With the total duty component on imported liquor being as high as 300 per cent, a bottle of Johnnie Walker sells in the non-duty free market for Rs 3,400 whereas it costs just $29 (Rs 1,305) at duty-free shops.

Diageo refused to comment on the volume of business it did with ITDC. But its managing director in India, Amar Raj Singh, said today his company had helped ITDC grow its duty-free business at an average of 30 per cent annually.

"Diageo greatly values the partnership with ITDC. We are hopeful that the issue is resolved soon and business resumes," he said.

If barred from selling to ITDC's duty-free shops, Diageo can still hawk its brand through the new private duty-free chain, Flamingo.

Among other premium international brands of alcohol sold at the duty-free shop's are Seagram's Chivas Regal and Allied Domecq's Ballantine's.

Currently, 200 cases of Johnnie Walker whisky have been made available in Delhi. The ITDC is also refurbishing supplies of the brand from south India, said Talwar.

Till October 2004, when Diageo stopped supplies to ITDC, the PSU had received 39,000 cases of the company's brands.

According to Diageo sources, a Rs 13-crore payment, which has gotten held up because of the controversy, is for 17 containers of Johnnie Walker whiskies the firm supplied to ITDC's duty-free shops over a period of 6 months starting July 2004.

The company contended that the supply was made as per the inventory requirement of ITDC, and on the basis of the ITDC's request for proforma invoices forwarded to Diageo.

"A formal proforma invoice backs every sale of Diageo to ITDC. These documents exist. In fact, purchase orders from ITDC for all centres except Chennai have also been generated," a Diageo India executive said.