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The Director General of Paris-based OIV, Dr. Federico Castellucci, recently announced to a group of international journalists in Verona that India had applied for the membership of the august body. This is one of the highlights in the development of the nascent Indian wine industry, which has progressed only during this decade and after more than a year of turmoil is on its way to recovery.
The second highest populated country in the world, India has perhaps the lowest per capita consumption of wine at 9 ml. About 1.5 million cases of wine were consumed last year by a total population of 1.18 billion. With middle classes estimated between 50-300 million, it is a fair guess that at least 30 million are potential wine drinkers, when the estimates put the current number at around a million. The middle class is expected to grow to 584 million by 2025, according an estimate by McKinsey; 94 million of these people are expected to have a high purchasing power and would be the potential wine drinkers. Women have been increasingly too. Drinking wine is being accepted socially. These factors have been driving global producers to enter the potential market.
Historical Background
Traditionally, India has been divided into two segments – the ones who drink alcoholic beverages, consume around 495 million cases (of 9 litres) hard liquor and The other segment, almost half of the total population, does drink alcohol at majority of teetotalers consider wine and alcohol as an evil responsible for many social problems, though wine is gradually being accepted as a drink. India became independent in August 1947 and a Federal Republic in January 1950, with the Constitution granting all states independent powers to formulate alcohol sales and taxation policy with the rider in Article 47 that they should discourage alcohol use. Gujarat, the home state of Mahatma Gandhi who was actively anti-alcohol because of the social problems its abuse created (especially for the poor), has been a dry state along with Mizoram. States like Haryana, Tamil Nadu and Andhra Pradesh have tried prohibition, but failed and changed back the policies; in fact Haryana has been quite progressive in its wine policies.
Wine as a Beverage The consumption of wine has been a very recent phenomenon in India. Although cheap wine has been in existence for around 50 years, the credit for starting local production is attributed to Chateau Indage (now Indage Vintners), which started in 1984 in Narayangaon, Maharashtra, the production of sparkling wine labeled as Omar Khayyam for export and Marquis de Pompadour for the domestic market. Wine imports were allowed for diplomats or against special licenses to hotels, which had to pay a heavy duty of over 600 percent.
As Indage added the table red and white wine ‘Riviera’ their portfolio in the eighties, another winery, Grover Vineyards, started producing still wines in Bangalore in the state Karnataka, in collaboration with the well-known French winemaker Michel Rolland in the mid-nineties. They introduced wine grapes for the first time and focused on red wines, primarily with Shiraz grapes and Cabernet Sauvignon for Rosé.
The white wines were made from Ugni Blanc. Sula Vineyards was founded in 1999 by Rajeev Samant, a Stanford University graduate, who returned to India and started growing grapes at the family orchards in Nashik with consultation from Kerry Damskey of Sonoma. Thus began the era of New World wines with varietals such as Chenin Blanc, Sauvignon Blanc, and Blush Zinfandel etc. – all international grape varieties – with the import of Merlot from Chile to make the reds. 
Propelled by Policy
The wine consumption was negligible – under 50,000 cases – at the turn of millennium. The process was accelerated in 2001 when the Government of Maharashtra, which had become the premium state for producing eating grapes a couple of decades earlier, announced a singlewindow policy, giving a multitude of benefits for the new wine producers including waiver of excise duty. This resulted in a mushrooming of around 60 wineries until last year. The industry started growing at 20-30 percent annually during the first part of the decade, in certain years even accounting for growth as high as 35 percent. This growth also resulted in over-supply. The quality improved gradually in the absence of any specific wine laws, but a lot of poor quality wine also found their way into the market.
At the same time, the government liberalised the import policy in 2002, allowing anyone to import wine; taxes were also reduced to around 420 percent. The hotels were allowed to buy custom duty-free wine and spirits soon after, as a small portion of their earnings in foreign exchange. However, they still had to pay the excise duty and the sales taxes, which were imposed by each state and varied across all states.
High Taxation
India has signed an agreement with the World Trade Organization, according to which it was to bring down the duties to 150 percent. Under pressure and with the U.S. and EU threatening to complain to WTO, the government of India relented and brought down the customs duties from the then-existing 264 percent to 150 percent in July 2007. 
Unfortunately, the states on which it has no control raised the excise duties instantly, in some states the total tax component being as high as 80 percent of the cost of wine, making their use prohibitive. In relative terms a €2 wine retails for €10-12 and the same wine may sell for €30 or more in hotels. For expensive wines, this ratio remains the same, making them even less accessible. This has been a major roadblock for growth in consumption. In actual terms, the foreign wines have become too expensive and the Indian wines are gaining market share faster.
Current Trends
The figures are only an estimate as no reliable statistics are available and are based on the cumulative estimates of wine stakeholders. The consumption of wine peaked in 2008 at around 1.8 million cases. It fell to around 1.5 million cases (nine litres each) last year (conservatives put it as low as 1.2 million). This included about 180,000-200,000 cases of imported wine. Around 400,000 cases were of cheap wine, which includes ‘Port’ wine made from table grapes and fortified with cheap alcohol, costing under Rs. 150. The balance of Indian wine is divided into two price points – between Rs. 200-350 and Rs. 400-600, with a few premium labels selling small quantities of super premium quality as high as Rs.1,200 (1 Euro=Rs.58) In comparison, imported wines start at around Rs.650 upwards due to various taxes.
Around 55 percent of the wine consumed is red – part of the reason is that people drink it for health reasons. Around 30 percent is white, the balance split evenly between Rosé and sparkling varieties. A recent Vinexpo study places India as one of the top ten fastest growing wine consuming nations in the world. It is expected to cross the earlier peak level of 1.8 million in 2010 and should continue the annual growth of around 25-30 percent. A study conducted by the English wine merchandiser Berry Bros. & Rudd looking into the future 50 years, predicts that India, along with China, will become a force to reckon with – both as a wine market and as a supplier of cheaper wines to the rest of the world.
Ground Reality
Around 4,000 acres of land in India is under vines, about 3,000 of which are in Maharashtra alone. Karnataka and Andhra Pradesh are the two other states producing grapes for wines, the former producing premium varietals. Howeverthese may not necessarily be the best wine grape growing regions. There are several unexplored areas, more importantly at the foothills of Himalayas in Himachal Pradesh, Uttaranchal and Kashmir, where wine grapes were grown before Phylloxera hit in the late 1800s and the political situation precludes any fresh initiative.

Two crops of grapes are possible due to tropical weather, but only one crop is harvested in February- April, as in the southern hemisphere, though India is in the northern hemisphere (Nashik, the wine capital, is at around 13° latitude).

Indage has been a pioneer and the biggest producer since its inception in 1984 with Sula growing fast and overtaking Grover a few years ago. The global meltdown hit Indage severely and the expansionist policies and the improper gauging of the market caused its downfall last year. It is currently in dire financial straits, with its very existence in doubt, making Sula the number one producer with around 250,000 cases sold last year. It is targeting 350,000 cases sales this year and will certainly cross this mark. Grover sold around 70,000-80,000 cases and is targeting 110,000 cases, an ambitious target. Several new wineries have come up during the last few years, notable among them being The Four Seasons Winery – a subsidiary of the liquor baron Vijay Mallya-owned United Spirits Ltd, the biggest Indian wine and liquor company in India. Selling around 40,000 cases last year, this Manarashtra winery is tipped to be the fastest growing winery during the next five years and is expected to overtake Grover. Pernod Ricard started making Seagram’s Nine Hills four years ago and is consistently inching forward, while the other multi-national Diageo failed to make progress with its ‘Nilaya’ label and discontinued it last year, at least for the moment.
Vintage Wines, Mercury Wines, York Winery, Vinsura, Chateau d’Ori, Indus, Globus, Miazma, Big Banyan and Zampa are a few of the wineries that have established themselves as the second wave of quality wine producers, but their sales levels are still low – less than 20,000 cases a year.
Although most of the wineries use the services of foreign winemakersand consultants from France, Italy, Australia, South Africa and the U.S., one Maharashtra winery – Riona Wines – went into partnership with an Italian winery last year. Vintage Wines, which produces the Reveilo label, has ventured into wines with Sangiovese grape with the help of their Italian consultant from Friuli. Current Scenario The industry was hit badly by the global downturn. In fact, prior to the onset, there was a terrorist attack in Mumbai in November 2008, killing many people. This meant a disruption of the international tourist and business traffic, making the business conditions tough overnight. Not only did consumption take a dive, the hoteliers clamped on the inventories and decided not to order wine until the existing stocks were liquidated, even at a loss.
Moreover, the industry had been over-producing for the last three years in anticipation of a higher demand, the actual level of which was not commensurate with their expectations. With concessions like zero excise duty, the number of producers had risen – even the farmers with no experience of marketing or production got into the fray. In Maharashtra, half the wineries are either shut down or have stopped fresh wine production due to the glut that has seen their tanks still full of wine. The farmers are not getting paid for their previous supplies for months and many have been forced to let the grapes drop. Last November, the unexpected rains destroyed about 40 percent of the crops, bringing some equilibrium though it meant losses to the growers.
Importers have been signing up with new foreign producers – sometimes without evaluating the market requirements. Adding each such label means extra inventory and money tied up in label registration costs, which are substantial and different for each of the 28 states (actually 33, if you consider ‘states’ like Delhi); every state requires them to be registered and the annual license fees have to be paid in advance to sell wine. In the absence of any wine laws the quality is not consistent and varies widely from producer to producer. Joining the OIV might helpformulate laws that would make them achieve consistency and improve quality. Just as in the case of consumers, the producers and the entire supply chain in fact, generally lack wine knowledge and the end quality remains suspect, though it has been improving consistently with the new passionate suppliers coming in.
Future Trends
Although the growth rate has been monumental, it has been on a very small base. It is highly dependent upon government policies. Wine is still viewed as liquor and the policies are tightly controlled. It is not considered a food or lifestyle product. Of course, the education and the non-monetary trade barriers – such as cumbersome documentation and procedures, allowing sale throughout India in the supermarkets making them more easily available – are important factors which when addressed will boost Consumption.
India has recently started making concerted efforts for exports, which will help it expand and improve quality. The Indian Grape Processing Board was formed a year ago to help promote Indian wines. For the first time, exhibitors took take part in Wines for Asia, Singapore in 2006 under the Indian banner due to the efforts of Indian Wine Academy, a private initiative, to promote Brand India. The Board followed it up last year with a joint participation at the Hong Kong Trade Show and the London International Wine Fair in May, with encouraging response. 
Growth Drivers
Although the growth of wine consumption is highly dependent upon the government policies, both at the central (Federal) as well as the state levels, there are various sociological factors as well on which it is dependent. Religion plays a role, though not directly and that only to some extent. Social mores are more Influential. 
Broadly speaking, wine consumption has increased due to higher availability of Indian wines, but it is also a result of the changing lifestyles, especially of the young and of women. The health benefits of wine have been exposed enough for many liquor drinkers to switch – or at least shift partly – to wine. International travel and growth of business and interaction with foreign businesses has also helped. Significant migration of Indians to countries where wine is an integral part of food and lifestyle in general induces the visiting friends and relatives to consume Wine.
Doing Business with India
Though in the long term this industry has a bright future due to the huge potential demand, it is a difficult and long term market with many speed breakers and bumps –in short, not a territory for the faint hearted or smaller pockets. It needs constant nurturing in terms of support and visits by the foreign producers and has to be developed with good understanding of partnerships with the importers. The Indian producers have to constantly improve quality, maintain consistency and use marketing skills that include opening new markets and ingenious sales policies. Collaborations in technology, equipment and foreign equity participation will be extremely rewarding. Export markets have to be conquered at competitive prices, even though this is a niche category. 
Yes, a lot will depend on government policies, but the role of educators, importers, producers and the supply chain cannot be undermined.