India’s import tariff on Scotch whisky has been reduced to 75% under the new UK-India trade agreement – half of its previous 150% rate. The announcement has prompted optimism among whisky producers and enthusiasts alike, with predictions of more accessible Scotch across the subcontinent.

However, industry experts suggest this apparent breakthrough may offer less relief than the headline figure suggests. The tariff reduction masks a complex system of state-level taxation that continues to place significant barriers on affordability. Even after this cut, the 75% duty remains among the highest in the world for spirits, especially when compared to China’s 10% rate or the zero-tariff policies of the EU and United States.

This gap between perception and reality reveals a puzzling truth about India’s alcohol market – one where even dramatic tariff cuts might fail to transform Scotch from luxury to everyday purchase for the world’s largest whisky-consuming nation.

The Tariff Cut Mirage

The reduction of import duties from 150% to 75% undoubtedly represents progress. The Scotch Whisky Association has projected a significant upside, e.g. +£1 billion in exports over 5 years, from the recent tariff cut. But these optimistic forecasts may underestimate the lasting impact of India’s multi-layered taxation system.

Consider a bottle of Scotch that retails for £100 in the UK. Under the previous 150% import duty, its landing cost in India would have been around £187 just after clearing customs. The new 75% rate reduces this to approximately £131 – a saving that appears substantial on paper.

Yet this is merely the first step in a tax journey that transforms affordable Scotch into a luxury good. Once the bottle enters an Indian state, another layer of taxation applies – one that varies dramatically across the country’s 28 states and 8 union territories.

All 28 states in the country have independent laws related to excise duties, vend fees, value-added tax (VAT), label registration costs and route to market, notes industry publication Sonal Holland. These state excise duties can be extraordinarily high – Maharashtra, for instance, until recently charged a 300% excise duty on imported spirits, only reducing it to 150% in late 2021.

The practical impact is striking. A bottle that costs £100 in Britain might ultimately retail at ₹30,000-₹33,000 (over £300) in India after all taxes and duties are applied. When Maharashtra reduced its excise duty from 300% to 150%, it led to retail price drops of around 35-40% for premium Scotch bottles – illustrating how dramatically state taxes influence final pricing.

This multi-tiered taxation creates a stark contrast with other major markets. While India’s 75% import duty might seem an improvement, it still dwarfs China’s standard 10% rate. The United States and European Union effectively apply zero tariffs on Scotch, with free trade in spirits established since the late 1990s. Japan abolished its import duty on whisky entirely in 2002.

The reduction to 75% duty might reduce the retail price of a ₹5,000 bottle to somewhere between ₹3,500-₹4,000 – a meaningful but not transformative change. In practical terms, it means Indian consumers will continue to pay significantly more than drinkers elsewhere, with imported Scotch in India typically costing several times its price abroad.

For context, by the time a bottle reaches the consumer, well over two-thirds of its final price is often pure taxation – a burden that will continue to position Scotch as a luxury purchase in India, despite the headline-grabbing tariff reduction.

The State Tax Maze

While the central government’s import duty receives most attention, India’s state-level taxation system creates the true barrier to affordable Scotch. Unlike countries with uniform alcohol taxes, India operates what can only be described as a patchwork taxation regime across its diverse regions.

Each state implements its own excise policy, resulting in dramatic price variations nationwide. The Times of India reported that when Maharashtra reduced its excise duty on imported spirits from 300% to 150% in late 2021, it led to an immediate 35-40% drop in retail prices for premium Scotch. This single policy change demonstrates the overwhelming influence state taxes exert on final pricing.

Karnataka, another major market, imposes excise exceeding 80% of the retail price on spirits, while Delhi has historically charged around 80-100% excise on imports plus additional sales tax. As one LinkedIn analysis notes, in India, taxes can constitute 60-80% of the retail price of the spirit, depending on the state.

This complex taxation doesn’t end with excise duties. States may levy additional VAT or sales taxes on liquor (alcohol remains outside India’s GST system), adding another 10-25% to prices in certain states. Special fees, import permits and label registration costs further compound the burden.

The motivation behind these steep rates is clear: revenue. Indian states rely heavily on alcohol taxation, with often 15-20% of a state’s budget derived from liquor taxes. This dependence creates strong resistance to any meaningful tax reduction that might truly democratise access to imported spirits.

The result is a bewildering landscape where a bottle of Scotch might cost substantially different amounts in neighbouring states, with taxes consistently forming the majority of the price. For consumers and distributors alike, navigating this maze remains the principal challenge – one that the central government’s tariff reduction does little to address.

Market Potential vs Reality

India’s position as the world’s largest whisky market makes it an irresistible prospect for Scotch producers. According to industry analysis, nearly one out of every two bottles of whisky sold worldwide is consumed in India, reflecting both its vast population and cultural affinity for the spirit.

The scale is staggering. India’s total whisky consumption exceeds 200 million nine-litre cases annually – equivalent to over 2.4 billion bottles. Eight of the world’s top 10 best-selling whisky brands are Indian, with the four largest domestic brands alone selling approximately 105 million cases in 2023.

Yet despite this enormous market, imported whisky occupies only a tiny niche. Recent estimates put imports at just 3-5% of India’s total whisky volume. Even as India has become Scotch whisky’s largest export market by volume – with 192 million bottles shipped in 2024 according to the Times of India – this represents only a fraction of overall consumption.

The disparity becomes even more evident when examining specific brands. Johnnie Walker, the world’s best-selling Scotch, sold approximately 22.1 million cases globally in 2023. Yet this global figure – impressive by international standards – is dwarfed by domestic Indian brands. McDowell’s No.1 alone sold 31.4 million cases in India that same year, far exceeding Johnnie Walker’s worldwide sales.

Within India itself, Johnnie Walker’s presence is even more modest. While exact figures aren’t publicly disclosed, industry data suggest Johnnie Walker’s annual sales in India likely amount to around 1 million cases – less than 5% of its global volume and a mere 0.5% of India’s total whisky consumption.

This gulf between potential and reality demonstrates why Scotch producers are eager for any tariff reduction, however limited. Even a small shift in Indian consumer preferences toward Scotch could translate to enormous growth. Yet without addressing the complex state tax system, the barrier to widespread adoption remains stubbornly high – keeping premium Scotch as a prestige product in a market where billions of more affordable domestic bottles are sold annually.

A Long Road to the Promised Land

The reduction of import duties on Scotch whisky from 150% to 75% marks progress in opening the world’s largest whisky market. It offers a glimpse of greater accessibility and reflects improving UK-India trade relations.

Yet this tariff cut addresses only one layer of a complex system. The maze of state taxes and excise duties continues to transform what might be an everyday purchase elsewhere into a luxury good in India. A bottle of Scotch will still cost several times its UK price even after this reduction.

Perhaps the real value lies not in immediate impact but in establishing direction. If this represents the first step toward comprehensive tax reform that eventually addresses state-level taxation, then more affordable Scotch in India might one day become reality. Until then, the price on the shelf tells a more complex story than any headline figure suggests.

Read the full article at Scotch Whisky’s Indian Puzzle