India – Whisky’s Promised Land

It’s been a long time coming, but the years of lobbying to tear down India’s protectionist tariffs have at last paid off. Having been taxed out of reach for millions of consumers, Scotch is set to become a whole lot more affordable in its biggest market, reports Tom Bruce-Gardyne…  

"The timing is superb. The last however many months have been depressing," says John Stirling of the Arbikie distillery near Montrose. The trade deal with India announced yesterday that will slash the country’s 150% import tariffs in half has been the industry’s cherished dream for years, and at times you could almost sense the despair.

"It’s always the hope that kills you," was Diageo’s corporate relations director, Dan Mobley’s response when asked if the deal would ever happen. But now it has, and Scotch distillers are over the moon. It is "the big win in the biggest whisky market in the world," says Mark Kemp, director of the Scotch Whisky Association which deserves credit for never giving up the fight.

Tory prime ministers like Boris Johnson were desperate to pull off this deal if only to prove that Brexit had been worth it. Perhaps Indian negotiators smelt the desperation and dug in ever harder, but in the end, help came from an unlikely source according to Lord Bilimoria who was involved in the deal. As he told the BBC on Tuesday: "When President Trump let slip the dogs of war a month ago, I’m sure that was a catalyst to get things done quickly."

The 150% tariffs have been in place since 2007. Yet despite this brazenly protectionist wall, Scotch whisky has only grown in what is now its biggest market by volume. India overtook France in 2022, and is now fifth by value with exports worth £248 million last year. What is bottled in Scotland as blends and single malts accounts for 48% of the value, but just 20% of the volume at present.

Huge quantities of bulk Scotch are shipped, some to be bottled in India like Teachers and VAT 69, and much to be dribbled into Indian blends. With bulk worth less than a quarter of bottled exports per litre of alcohol, that dynamic looks set to change if demand increases as expected. The SWA talk of the reduced tariffs adding £1 billion to Indian exports within 5 years.

The reason for such optimism is that Scotch is reckoned to have around just 2% of India’s whisky market. The headroom for growth is vast, and the pent-up demand is palpable. In India, "no-one needs to be introduced to Scotch. Everybody knows it and everybody aspires to it," said Diageo’s former CFO, Lavanya Chandrashekar in February 2024.

Leonard Russell, MD of Ian Macleod Distillers, says "discussions [on the deal] have been going on for as long as I can remember. We opened a business in Delhi twenty years ago, so, I’m very excited. There’s been consistent GDP growth in India over the last 4 years, and with ongoing growth for the next 3-5 years, the middle class will have doubled."

He dismisses the idea that cutting prices, due to lower tariffs, might dent the status and desirability of Scotch. Sanjeev Banga, president of international business at the big Indian distiller Radico Khaitan disagrees. When asked by WhiskyInvestDirect two years ago, he pictured someone picking up a bottle of Johnnie Walker Red Label at its new low price and saying: ‘This is for the masses! I'm not drinking that.’

At which point the Diageo salesman would doubtless leap in with a bottle of Black Label in one hand, and Blue Label in the other. In India, as if to mirror the country’s caste system, there is a long ladder of whisky categories to climb, and today the top rung is just as likely to be an Indian single malt as one from Scotland.

Pernod Ricard with its stash of premium Indian brands like Imperial Blue and Royal Stag whose combined sales are over 50m cases, and Diageo which acquired the country’s biggest distiller United Spirits in 2014, will reap the greatest rewards.

"Larger companies have the resources to pursue a market where there are more constraints and barriers to entry," says Kieran Healy-Ryder at Whyte & Mackay. "But, if you’re a smaller distiller, there’s nothing more significant than a new trade agreement that gives a better playing field and opens the door." India is currently ‘a focus market’ for Whyte & Mackay and its four single malts – Dalmore, Jura, Fettercairn and Tamnavulin.

At The Borders distillery, MD John Fordyce says the current system in India "restricts the number of available partners, because at that level of tariffs you need an enormous amount of working capital to buy from us." But as the door creaks open, he is realistic about the opportunities. "India is vast. A company our size can’t possibly hope to go what they call ‘pan-India. We’re going to have to do three or four States and do our job well."

Kieran agrees – "It’s not one market, it’s fifty, and we’ll only be successful as an industry in India if we’re able to navigate the cultural differences within it." Either way, change will not happen overnight. The new 75% tariffs might take a year to come in, after which they are set to reduce down to 40% over a decade. In the meantime, who knows how much State levies and taxes will rise to fill the gap.

For now, it is a real good news story for the industry, and well-timed as John Stirling points out.  "At Arbikie, we’ve been trying to get into India for quite a while. India is a challenge, but it’s about finding the right person there, and I think this gives us the impetus we need," he says as he prepares to join the stampede of distillers heading the same way.