The recently signed India-UK Free Trade Agreement (FTA) is poised to reshape the landscape of the Indian spirits market, with Diageo India expecting to reduce prices on some of its Scotch whisky brands. The agreement, which slashes import duties on UK-made spirits, is anticipated to benefit consumers in the world's largest whisky market.
Under the terms of the FTA, tariffs on UK-made whisky and gin will be reduced from approximately 150% to 75% initially, with a further reduction to 40% over the next decade. Diageo anticipates that the FTA implementation will be completed in fiscal year 2027. This duty reduction is expected to translate into a high single-digit percentage decrease in consumer prices, according to Diageo's Chief Financial Officer, Nik Jhangiani. He also expressed his belief that this should drive a similar high single-digit percentage increase in volumes. For Diageo, which follows a July–June financial year, the price cut will likely begin with high single-digit percentage reductions, with the company confirming that it will fully pass on the duty benefits to consumers.
While a price drop of around 20-22% on some products is possible, the actual impact will depend on factors such as local state taxes and companies' pricing strategies. Industry experts caution that the anticipated price reductions may not be uniform across all states in India, due to local taxes and regulations potentially hindering the extent of price cuts. Customs duties currently account for about 20% of the final retail price of Scotch in India.
Diageo anticipates that the price reductions will stimulate interest in Scotch whisky, which has seen a decline in sales as consumers have shifted towards Indian-made alternatives. Scotch whisky currently holds only 4% of India's total whisky market, as high import duties have kept it expensive. The company hopes that the FTA deal will reignite demand.
According to industry body IWSR, some industry commentators are suggesting an up to 30% drop in on-shelf prices though the realistic saving is likely to be around 10% for BIO scotch.
The implementation of the FTA is not without its challenges. Concerns remain about red tape, minimum import pricing, and the potential for price wars.
Despite these challenges, the FTA is expected to have a positive impact on the Indian spirits market. It will open up the market for new UK whisky brands and expose Indian consumers to relatively smaller scotch whisky brands and casks. The deal will also increase quality and choice for discerning consumers across India. Diageo India expects these reductions mainly to happen on the Bottle-in-Origin (BIO) portfolio, which is distilled and packed in the UK and imported to India. However, over the Bottled-in-India (BII) category, they said the reduction in the prices would be less, because it will have a lesser component of benefit.
Diageo is a leading player in India's beverage alcohol sector and is among the top 10 fast-moving consumer goods companies in India by market capitalisation. India is one of Diageo's largest markets globally and accounts for almost half of its total global spirits volume. The company owns global brands including Johnnie Walker, Tanqueray, and Smirnoff.
