The Aakhya Weekly #146 | India, the UK, and a Splash of Scotch
In Focus: The Curious Case of Alcohol in the India-UK FTA
by Swapneel Thakur
Finalised on May 6 after being initiated in 2022, the India-UK Free Trade Agreement marks a landmark development for both nations. For the UK, it represents the most consequential economic step since Brexit. For India, the agreement carries strategic depth, aimed at strengthening its exports of goods and services to a country where 1.5 million people of Indian origin—accounting for 2.3% of the UK’s population—reside. The deal is projected to double the current bilateral trade volume, already at USD 60 billion. As we await the formal release of the treaty text, Aakhya has prepared a concise summary highlighting its chapters, objectives, and the key sectors poised to benefit, which is available here. However, if one sector has stirred spirited debates and captured widespread attention, it’s the alco-beverage industry, making headlines for all the right and wrong reasons.
As part of the agreement, the import duty on premium UK whiskey, previously around 150%, is set to be slashed to approximately 75%. Tariffs on Scotch whiskey and gin will also be phased down to 40% over the next decade. This reduction is likely to shrink the price difference between domestic and duty-free Scotch, with retail prices expected to drop, bringing down the premium from 31% to around 20%, according to experts. This move is anticipated to make these spirits more affordable for Indian consumers. However, the development triggered a 5% dip in Indian liquor stocks and has sparked a mix of reactions.
While some see it as a step toward improving ease of doing business for emerging global distilleries, others have raised concerns about whether the deal has a Minimum Import Price (MIP) to prevent issues like under-invoicing, market dumping, and the sections for reciprocal access for Indian alco-beverages in the UK. Many of our readers may wonder, amidst a deal covering crucial sectors like automobiles, textiles, pharmaceuticals, and mutual recognition agreements in services, why alcohol has emerged as a prominent topic in economic discussions. Why is it drawing so much attention? In this edition of Aakhya Weekly, we explore the reasons behind its inclusion in the Free Trade Agreement and unpack what India and the UK stand to gain from it.
From Brexit to an Indian FTA - Understanding the British Perspective
To grasp the UK’s motivations behind pursuing a Free Trade Agreement with India, it is important to understand the structural composition of the British economy. As an island nation with limited natural resources and a modest manufacturing base, the UK relies heavily on its services sector, which includes finance, education, legal, digital, and professional services. This sector contributes nearly 80% to the country’s GDP and forms a substantial part of its global exports, valued at approximately USD 594 billion in 2023. Before Brexit, a large share of these exports—around 40% in 2019—were directed to the European Union, benefiting from tariff-free access and regulatory alignment.
Following Brexit, the UK faced new trade barriers and regulatory requirements that disrupted its previously seamless commerce with the EU. This shift forced Britain to redefine its trade strategy in two ways: by reshaping its export structure independent of EU privileges, and by using its newfound autonomy to deepen economic ties with fast-growing markets like India, an influential player in the Indo-Pacific, a region contributing 40% to global GDP. Yet, a key challenge persisted: much like the UK, India’s economy is heavily service-driven, accounting for nearly 50% of its GDP, and its recent initiatives like Make in India and the Production Linked Incentive (PLI) scheme aim to position it as an export-oriented manufacturing hub. This created an imbalance—while the UK has a significant demand for Indian exports, India has a lesser need to import from the UK, comparatively.
This led to a crucial consideration: what could the UK uniquely offer that India could not readily produce or procure elsewhere? While sectors like automobiles, components, medical devices, and industrial inputs could be met through domestic manufacturing or alternative FTAs, one area stood out—premium alcoholic beverages. With deep-rooted heritage, global brand prestige, and high-end market appeal, this segment is something the Indian market lacks at scale. The UK’s alco-beverage industry is valued at approximately USD 63 billion, contributing around USD 95.8 billion to its economy—29% from exports and 12% from domestic output. At the heart of this lies Scotch whisky, a flagship product that accounts for around 26% of the UK’s food and drink exports. Its reputation stems not just from quality, but from a legacy built over centuries, a protected production process, and geographic exclusivity—traits that make it an irreplaceable player in the global spirits market. Whisky exports from the UK to India were valued at approximately USD 139 million, even as they faced a high import tariff of 150%. Meanwhile, India’s whisky imports from across the globe surged nearly fourfold—from USD 46 million in 2010 to USD 212 million in 2020—highlighting a sharp rise in domestic demand. This upward trend reinforced the UK’s decision to position premium alcoholic beverages, particularly Scotch whisky, as a key focus area in its FTA negotiations with India.
A Chip to Bargain On - the Indian Perspective
For India, lowering tariffs on alcoholic beverage imports from the UK presents a complex yet compelling scenario. While certain states have enforced outright bans and others impose high taxes to discourage consumption, the alco-beverage sector is witnessing robust growth. India is now among the fastest-growing alcohol markets globally, with per capita consumption of pure alcohol increasing from just 1.3 litres in 2005 to 2.7 litres in 2010, and an estimated 3.2 litres in 2023.
What sets India apart as an attractive destination for distilled alcohol like whisky is its consumption profile—over 92% of recorded alcohol consumption comes from distilled spirits, unlike developed countries, where beer and wine dominate. The preference is also tilted heavily towards brown spirits such as whisky, rum, and brandy, with white spirits like vodka and gin holding a smaller share. Despite this growth, India’s per capita alcohol consumption remains significantly below the global average. This relatively low consumption base means that any increase in imports is unlikely to trigger public health alarm or strong political resistance, especially when positioned as a trade strategy rather than a consumption push. Combined with favourable demographics—over 13 million people enter the legal drinking age annually—and macroeconomic factors such as rising GDP, rapid urbanisation, an expanding middle class, and increasing disposable incomes, India emerges as a promising and dynamic market for future alcohol consumption.
Therefore, the decision to significantly reduce tariffs on UK spirits serves a dual purpose. First, it strengthens India’s negotiating position by enabling reciprocal concessions from the UK on key Indian exports such as gems and jewellery, textiles, auto components, pharmaceuticals, and engineering goods—sectors where India is rapidly expanding. It also opens doors for Indian-made liquor to the UK market, appealing to British consumers and the sizable Indian diaspora. Second, although a 50% tariff reduction may lead to a short-term dip in revenue, the comprehensive taxation structure on alcohol, from import duties to retail levies, ensures continued revenue collection. Moreover, with rising alcohol consumption in India, increased import volumes could generate sustained long-term revenue growth for both state and central governments.
Conclusion
As we await the formal implementation of the treaty, tariff cuts on Scotch and British spirits are celebrated by beverage enthusiasts across India. Yet, for many policy analysts, this remains one of the most intriguing and debated inclusions in the FTA framework. At the same time, the absence of the full treaty text leaves several critical questions unanswered—questions rightly raised by Indian distilleries. In an era championing 'Made in India' and 'Make in India,' will the influx of more affordable foreign spirits disrupt the domestic market? Are there safeguards against dumping, lessons perhaps to be drawn from earlier trade agreements with South Korea and Japan? And could this deal pave the way for Indian liquor brands to find new consumers in the UK? Until the full details of the treaty are made public, these remain important possibilities—but for now, only possibilities.
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