Trade bureaucrats and liquor industry captains will be toasting WTO?s ruling that India?s duties on imported liquor, contrary to what the US alleged, weren?t violative of WTO rules. But this isn?t a particularly good verdict for the cause of competition. India?s total import taxes exceed by as much as two to three times the bound rates; this is no advertisement for good trade practice. While India can argue that the additional import duties charged are to compensate for the domestic taxes that fall on the industry, the bigger truth is that excessive pampering of the industry has helped build an oligopoly with a few firms in firm control. In the branded spirits segment, the four largest firms currently account for two-third of the market with the largest alone accounting for almost half of market. Beer drinkers are even less well served by competition: the two largest firms account for three fourth of the market share. High profits also provide large bounties for the other major stakeholders, namely the distributors. Industry numbers show that while the margin for the wholesaler is a high 8%, it goes up to a stupendous 20% for the retail trade. In spite, or because, of these high margins consumers mostly have choice of low quality molasses-based spirits that account for as much as 95% of the Indian market. Industry lobbying is, of course, intense. Total imports of beverages and spirits in 2006-07 was a mere $111 million, 0.06% of the total imports.
In a larger sense, the liquor industry in India also suffers. Autarky has made domestic liquor firms ill-suited to serve global markets, never mind a few high profile acquisitions. The global market for spirits and wine is set to grow from $276.8 billion in 2005 to $297.7 billion by the end of the decade, with the wine segment growing around 50% faster than spirits. But the chances that India can play even a small part in this are bleak. Total exports of beverages and spirits was a laughable $61 million in 2006-07. State-level regulation, which is horribly complicated and differs from state to state, doesn?t make things easier either. But what global practice inspired entrepreneurship can do is clear from India?s small but already noticeable wine industry, which has made some strident gains. Alcohol producers won?t admit this?the WTO hasn?t actually done them a favour.