EXCLUSIVE-India moves to resolve Scotch tariff dispute under UK trade pact, sources say

India assured industry executives on Monday it would honour a trade pact with ‌Britain and resolve a dispute over Scotch whisky tariffs, easing concerns for companies such as Diageo and Pernod Ricard, six people with direct knowledge of the matter said. In the first major dispute linked to the landmark India-UK trade pact, implemented in July, New Delhi in recent weeks launched investigations into major liquor companies ‌and told them bulk Scotch imports were not eligible for the tariff cut to 75% from 150% agreed under the deal, Reuters has reported.

At ‌a closed-door meeting on Monday, commerce ministry officials told liquor industry executives that New Delhi would honour the pact in letter and spirit. "We are potentially moving towards a resolution. Bulk Scotch whisky imports are indeed part of concessions under the trade deal," said one government source familiar with the discussions.

A second government source said Commerce Secretary Rajesh Agrawal told attendees that ⁠necessary steps ​were being taken to address the issue "so ⁠that the duty concession on bulk Scotch whisky is not impaired". India's commerce ministry did not immediately respond to a request for comment.

A resolution would come as a relief for market ⁠leaders Pernod Ricard and Diageo, as well as Indian distillers Radico Khaitan and Allied Blenders and Distillers. The offices of those companies and several others were searched in recent days ​by Indian tax officials, who also questioned executives, sending shockwaves through the industry.

The companies did not respond to Reuters queries. INTERPRETATION ISSUES

Scotch exports ⁠to India stood at $335 million in 2024 and the Scotch Whisky Association has forecast the trade pact could increase that figure by $1.34 billion over five years. After the tax investigation was reported ⁠by ​Reuters, Britain said it was working with India on the issue, while the Scottish government also raised the treatment of bulk Scotch imports with New Delhi in recent days. India has not commented on the matter, but its assurance could help defuse a dispute between key trading partners.

The disagreement centres ⁠on the interpretation of customs classifications. Tax inspectors have told companies that lower tariffs should not apply to Scotch imported in bulk containers, a crucial ⁠part of the business because it ⁠is used to produce many popular whisky brands in India. The industry argues that all Scotch whisky imports, whether bottled or bulk, should qualify for the reduced tariff.

Bulk Scotch imports are mostly used to produce Indian-Made Foreign Liquor, or ‌IMFL, whisky, which ‌is made by blending Scotch with other spirits and ingredients.