India's wine industry suffers growing pains (Feature)

By Siddhartha Kumar Jun 7, 2010, 4:09 GMT

New Delhi - With its fast-growing economy and expanding middle-class, India is a new market for both wine consumption and production, but the local industry is still taking baby steps.

India is a country where abstinence from alcohol is rooted in religion and politics. The constitution even endorses principles of prohibition espoused by Mahatma Gandhi.

But sociocultural changes brought on with the opening of the economy have seen some segments of this essentially conservative society shed their prejudices against alcohol consumption.

Sales of whiskey and beer have shot up in recent years, and now urbanized Indians are showing marked preference for wine.

'The drinking culture is changing. Wine is now regarded a status drink, the younger lot, particularly women find it fashionable to drink wine,' said Delhi-based business executive Vishal Rastogi.

'Many health-conscious people like me have switched from hard liquor to wine,' said Rastogi, 35.

Wine clubs are opening in cities such as Delhi, Hyderabad and Bangalore.

From a non-existent market over a decade ago, wine production and consumption is growing 25 per cent annually and expected to maintain that momentum for the next five years.

The wine industry is relatively small but holds enormous potential given the low per-capita consumption, high growth in disposable incomes and urbanization.

Every year 1.6 million cases are sold, of which some 20 per cent are imported, mainly from Europe.

Over 50 local wineries have been set up in recent years, most in and around Nashik in western state of Maharashtra, the principal wine district. Other vineyards are located in Bangalore and the highland state of Himachal Pradesh.

Realizing that support is crucial for the nascent industry, the government is providing financial concessions and facilities such as wine parks to give a boost to the sector.

Maharashtra is waving excise taxes for vintners and offering subsidies for grape farmers.

Local wineries benefit from import duties on foreign wine of up to 160 per cent, prompting protests from the EU against discriminatory taxation.

Another key government initiative is the establishment of the Indian Grape Processing Board, tasked with setting quality standards, preparing a national strategic plan for the industry and promoting it internationally.

Although local winemakers justify protectionism in the context of highly subsidized European wines, they complain of varying excise fees across states and complex licensing processes.

'The government is helping sustain the growth momentum. We are focusing on quality and are working to resolve problems faced by producers,' board vice chairman K Rajeswara Rao said.

'What is needed are policies that generate more competition, lowering the cost of market entry in every state and applying the minimum possible taxes on wines,' industry expert Alok Chandra wrote recently, citing the success in Maharashtra.

Currently, the industry is in a rough patch owing to global recession, a drop in tourist traffic following the Mumbai attacks and tax issues. A global glut of wine and domestic overproduction by grape farmers led to unsold stocks.

One of the country's largest wineries, Chateau Indage, has been in dire financial straits, mainly due to its acquisitions of wineries in Australia and South Africa.

A court recently gave the company a temporary reprieve from liquidation, allowing it some time to sort out debt of about 100 million dollars.

In a first-ever foray overseas, eight Indian companies exhibited their wines at the London International Wine Fair last month. India is also slated to become the first Asian country to join the elite Paris-based Organization of Vine and Wine.

The United Breweries conglomerate recently announced plans to export wine to Britain, and Italian winemakers have signed a joint venture with a local company.

'India's wine market is not mature yet but the industry is on an aggressive growth path, as most of the winemakers are relatively young,' Ankush Mittal, an entrepreneur in his early 20s, who plans to launch a wine brand soon.

'There are serious players now, so one can expect genuine quality wine from India.'