Diageo to Reduce Scotch Whisky Prices in India with FTA Implementation

Strategic Insights -

The recently signed India-UK Free Trade Agreement (FTA) is expected to bring significant benefits to consumers in India, including a reduction in scotch whisky prices. Diageo Plc, the global leader in spirits, anticipates that the implementation of the FTA will be completed in fiscal 2027, leading to lower import duties and subsequently, lower prices for consumers. Currently, India constitutes the largest whiskey-consuming market and is Diageo's largest client by volume and second-largest by value.

Key Takeaways:

  • The India-UK FTA is expected to reduce tariffs on UK-made whisky and gin from around 150% to 75% initially, which will further come down to 40% over the next decade.
  • The FTA implementation is expected to be completed in fiscal 2027, benefiting Indian drinkers and potentially leading to a price drop of around 20-22% on some products.
  • At present, customs duties account for about a fifth or 20% of the final retail price of Scotch in India, with the rest coming from production costs, marketing, and hefty state taxes.
  • Diageo hopes the FTA deal will reignite the demand for scotch single malts in India, which slowed in 2024 as drinkers began turning to Indian-made alternatives.
  • Industry experts have warned that the FTA may not lead to uniform price reductions across states due to local taxes and how companies work backwards on their calculations.
  • The International Whiskey and Spirits Record (IWSR) has estimated that on-shelf prices could go down by 30%, but realistically only 10% could be saved on BIO scotch.
  • Several liquor companies are already selling at lower-than-ideal prices to make up for high taxes, and states are likely to oppose any price cuts because it would mean losing revenue.

Sources:

  • ET: Diageo to slash Scotch whisky prices with FTA implementation
  • ET: Industry expert quoted by ET
  • IWSR: The Impact of the India-UK FTA on Scotch Whisky
  • IWSR: Concerns around minimum import pricing and non-tariff barriers.

Statistics:

  • Tariffs on UK-made whisky and gin will be reduced from around 150% to 75% initially, and further down to 40% over the next decade (FTA implementation).
  • Customs duties account for around 20% of the final retail price of Scotch in India (present state of affairs).
  • Potential price drop of around 20-22% on some products (IWSR and industry expert estimates).
  • On-shelf prices could go down by 30% (IWSR estimate).
  • Realistically only 10% could be saved on BIO scotch (IWSR estimate).
  • India constitutes the largest whiskey-consuming market and is Diageo's largest client by volume and second-largest by value.
  • Diageo's fiscal year 2027 is expected for the implementation of the FTA (Nik Jhangiani, Diageo's CFO).