Postcard from India

Returning for another peek at Scotch whisky's biggest market by volume, Tom Bruce-Gardyne talks to two long-established players about what might happen on the ground at a State-level once import tariffs are halved next year …

Many in the Scotch whisky industry had given up hope that India would ever lower its tariff on imported spirits. Fixed at 150% in 2007 and seemingly set in stone, negotiations had ground on for years, first under the EU and then as just the UK after Brexit, but to no avail.

Prime ministers came and went. Boris Johnson declared it would be done and dusted by Diwali in October 2022, but that was to be his fate, along with Liz Truss and soon Rishi Sunak.

Then, amidst the chaos of America's threatened trade war, things sped up, and a deal was struck in May. Ironically, according to Brian Megson, CEO of Angus Dundee, it's now the UK that is dragging its feet on the final steps. "The Indians can ratify it very quickly, but it's going to take us ‘til the middle of next year to do everything," he says. At which point the tariff drops to 75%.

Angus Dundee is a small, publicly quoted distiller that owns two malt distilleries - Tomintoul and Glencadam. With notable foresight, it opened an Indian subsidiary in 2012 and, seven years later, launched MacRoy's – a bottled-in-India blended Scotch, similar to Vat 69 and Teachers.

There is no tax advantage to local bottling, "but you're not shipping glass and closures, and dry goods in India tend to be a slightly lower price," says Megson. How the market will change once the new tariffs kick in is the big question. "It will generate more business, but as to how much, we've absolutely no idea," he says. "So much is up in the air. With 28 states, what will they do with local taxes?"      

Weird though it sounds, these local levees often favour imported spirits. In the giant state of Maharashtra (population: 128 million), they are currently taxed at 150%, compared to 300% for Indian spirits, claims Rakshit Jagdale, MD of Amrut Distilleries. Local distillers are lobbying hard to level the playing field, but one industry veteran doubts they'll succeed.

"I personally feel it's not going to happen," says Devender Gulia, sales director at Jagatjit Industries, and formerly at Diageo and Beam Suntory. "Somehow, the bureaucracy thinks people should have good-quality liquor at affordable prices, and the contribution from bottled Scotch is nominal."

By his reckoning, whisky amounts to some 300m cases, or two-thirds of all spirits in India, and is dominated by Indian-Made Foreign Liquor (IMFL). Out of this total, Scotch - whether bottled in Scotland or India, accounts for approximately 10m cases – "so, it is extremely small," he says.

Viewed from Scotland, the sheer size of India – the world's most densely populated country with an unparalleled thirst for whisky, feels almost intoxicating. Devender takes a more sober view, and says: "Scotch has its own target audience, and there's no point comparing this segment to overall IMFL."

However, the premium segment, which includes Scotch, is currently on fire and "growing at around 45% a year," he claims. Halving the tariffs might shave about 200 rupees (£1.70) off the shelf price of an average blend. It doesn't sound a lot, but it could be enough to attract the vast pool of drinkers who sit in the price band below. "Once they come within reach of ‘premium' Indian whiskies like Blender's Pride and Rockford Reserve, consumers will move to brands like Johnnie Walker Red Label and Grant's," says Devender.

He also believes the country's whisky drinkers are getting younger. "When I was at Beam Global, Teacher's was for 'somebody who had tasted success', and the target audience was 35-plus," he says. The same was true of Jagatjit and its bottled-in-India Scotch blend – King Henry VIII. But in its recent rebrand as 'Damn Good Scotch', King Henry is now chasing anyone over 25 years old

Most of the bulk Scotch disappears into Indian whiskies – be it a few drops or a good glug per bottle. "It's very hard to get Indian companies to tell you what they put in their IMFL brands," says Brian Megson. "But clearly the assumption is the more expensive they are, the more Scotch malt is in them."

At present, while 80% of Scotch is shipped in bulk to India, it accounts for just over half the value. Bottled blends were worth an average £4 a litre compared to just £1.40 for bulk blended malt last year, so you can see the incentive to bottle at source. It may explain why India is ramping up its malt whisky production.

According to Devender Gulia "the multinationals are thinking there could be a shortage of Scotch in Scotland," which may be why Pernod Ricard India is building the biggest malt distillery in Asia at Nagpur in Maharashtra to feed its domestic whiskies. With a capacity of 13m lpa (litres of pure alcohol) it will be huge by Indian standards, but still only half the size of Glenlivet.

As for Pernod's other recent move – selling off its Imperial Blue Indian blend to Tilaknagar Industries in July, he says: "The kind of investment needed to support such a brand doesn't make commercial sense for multinationals. Even Diageo is in the process of selling, or outsourcing McDowell's No.1."

These are massive brands. McDowell's was India's top-seller on 32m cases last year, while Imperial Blue was third at 23m – which makes its €412.6m price tag look quite a bargain. It is all part of Pernod's premiumisation strategy in India, where it plans to triple net sales in a decade. With a fair wind, the entire Scotch industry might achieve that.