Indian authorities are questioning the classification of bulk Scotch whisky, which could keep import duties at 150% despite the recent trade deal. This dispute creates margin pressure for major distillers like Diageo, Pernod Ricard, and Radico Khaitan who rely on imported spirits for local blending.
A significant trade dispute has emerged following the implementation of the India-UK Free Trade Agreement (FTA) in July 2026. While the agreement was intended to reduce import tariffs on Scotch whisky from 150% to 75%, Indian customs authorities are now challenging the classification of bulk whisky imports. This development creates fresh regulatory uncertainty for the domestic spirits industry.
The central issue is how bulk Scotch is classified. Indian customs officials are arguing that these shipments do not meet the criteria for finished Scotch whisky and should instead be categorized as 'compound alcoholic preparations.' If this classification stands, the import duty would remain at 150%, effectively nullifying the tariff benefits promised under the new trade pact. This is a critical issue for the industry, as approximately 80% of Scotch whisky imports by volume enter India in bulk to be blended and bottled locally.
For major players including Diageo, Pernod Ricard, Allied Blenders and Distillers, and Radico Khaitan, this dispute carries direct financial implications. These companies have structured their supply chains to import bulk malt spirits, which are then blended with domestic grain spirits to cater to local preferences. Higher-than-expected duty costs on these imports could lead to margin compression, as companies may struggle to pass on the added tax burden to price-sensitive consumers in a highly competitive market.
Beyond the tariff dispute, the situation has escalated into a broader regulatory investigation. The Directorate of Revenue Intelligence has conducted searches at the offices of major distilling firms to probe potential duty misclassification. This adds a layer of operational and legal risk for shareholders, as prolonged regulatory scrutiny can impact management focus and long-term investment planning.
Industry bodies, including the International Spirits & Wines Association of India (ISWAI) and the Confederation of Indian Alcoholic Beverage Companies (CIABC), are actively lobbying for a resolution, warning that the current uncertainty could hurt 'Make in India' manufacturing efforts by incentivizing the import of finished bottled products over local blending. Investors should watch the outcome of the high-level meeting between the Indian commerce ministry and industry executives scheduled for Monday, November 2, 2026. The resolution of this classification clash will determine whether companies can maintain their planned cost structures for the remainder of the financial year.