Why the Indian wine market is not taking off

With its rising middle class one might expect a growing demand in India for quality wines. But the reverse is the case. Wine volumes fell 15.7 per cent between 2009 and 2010.

China offers a stark contrast. It imports 2.5m cases of Bordeaux a year. India imports only 100,000 cases of wine a year. More is sold to the Maldives which are, of course, a major destination for western tourists.

In the UK consumption per adult of wine is 27.7 litres a year; in China it is 4.5 litres a year; and in India 0.01 litre a year, the equivalent of two teaspoons. Indians also consume less beer, barely one litre per person per year, compared with 23 litres in China, slightly above the world average.

The biggest obstacle to more sales is price which is the result of a punitive tariff on imported wines and spirits of at least 150 per cent. On top of that individual states apply their own taxes which range from 30 to 100 per cent. Gujarat, a state with one of the fastest growing economies, bans the sale of alcohol altogether. Labelling requirements are another obstacle to distribution.

A bilateral trade agreement with the EU is supposed to tackle the issue but talks have been dragging on since 2007 and no deal is in prospect. Mahatma Gandhi's austere doctrine still carries some weight and the government is concerned that cheap alcohol might blight the lives of poor people.

Indian wine has not enjoyed a good reputation, although the Mogul empire in 16th century India was supplied with wine from the High Indus Valley and Afghanistan. Quality wine production has increased with the support of subsidies and low-cost loans, but this has led to an over supply problem.

Could Doha be back on?

India's new government is eager to resume the Doha round of world trade talks, according to the country's new minister for commerce and industry. Anand Sharma told the Financial Times that India was keen to break the impasse in negotiations. Mr Sharma's tone marks a significant shift from his predecessor, Kamal Nath, who was known for his uncomprising stance in the Doha talks.

Many countries blamed India for the breakdown of ministerial talks a year ago intended to forge a blueprint for concluding the Doha round. The meeting ended in disarray after India and the US failed to reach a compromise over the special safeguard mechanism, designed to protect farmers in poor countries from surges of agricultural imports. Washington said imports should have to increase 40 per cent to trigger safeguard tariffs, whereas India wanted a very low 10 per cent trigger.

World trade negotiations have been the most significant driver for CAP reform for nearly two decades and a resumption of them could counter balance strengthening protectionist forces in Europe.