On the terrace of Moshe’s, a European restaurant in Bombay, a young professional Indian couple is enjoying a glass of wine over a plate of pasta.

They are drinking a cabernet shiraz made by Sula, a popular homegrown label, which they have consumed heartily. But their selection has largely been driven by price.

The Indian red, at 950 rupees (£11.10) a bottle, is a third of the cost of the Australian Tahbilk shiraz. Across the board, the (limited) wine list tells the same story. The most expensive Indian bottle is 1,100 rupees; the dearest foreign import is 3,500 rupees.

Mona, a banker, and Aashish, a consultant, both 35, are just the sort that international alcoholic drinks makers want to target in one of the world’s fastest growing markets. Upwardly mobile and socially liberal, they epitomise India’s booming middle classes who are earning good money as the economy zips along with 9 per cent annual growth.

But the Indian Government’s stance on import duties means foreign access to an estimated $1.8 billion (£930 million) alcoholic drinks market, growing at nearly 30 per cent year-on-year, is severely curtailed.

While India’s basic import duties on wine and spirits are 100 per cent and 150 per cent respectively, federal and state taxes can push tariffs as high as 264 per cent and 550 per cent.

“This is a closed market for us,” Lamberto Gancia, an Italian winemaker and president of Comité Européen des Entreprises Vins (CEEV), the European wine producers’ association, said.

This week, international patience ran out and the US joined the European Union in filing a complaint with the World Trade Organisation (WTO). The final straw appeared to be the omission of any reference to tariff reductions in India’s annual budget statement last month.

Mariann Fischer Boel, the EU Agriculture Commissioner, in India last week, said she was “very disappointed” as she made the rounds of ministers to push a point raised in November after an EU report found “blatant violations” of WTO rules.

With the US also seeking WTO intervention, India is under more pressure than ever to reduce tariffs or face retaliatory duties on its exports. In the past, a WTO disputes settlement panel has ruled against Japan, South Korea and Chile over discriminatory spirits taxation regimes.

Kamal Nath, India’s Commerce Minister, has made conciliatory noises but progress depends on a change in statute in a notoriously slow legislative system.

The Government could announce tariff cuts outside a budget but it will also want to see some concessions on agricultural goods in return when they negotiate with their trading partners at the Doha talks.

India feels protectionism is warranted while it has a powerful domestic lobby against market liberalisation. The Indian wine industry has potential but is young. The spirits and beer markets are dominated by Vijay Mallya, the Kingfisher brand baron, who is battling with the Scotch Whisky Association over its refusal to recognise his product as whisky in Europe because it is distilled from molasses.

Kapil Grover, director of Grover Vineyards, one of India’s highest regarded labels, said that a blanket reduction in tariffs would “destroy” the emerging wine industry with a wave of cheap imports. Indian wine makers would prefer a staged reduction in duties, favouring higher quality imports.

“There is a glut of lousy wine available all over the world and we don’t want to be the dumping ground. People must have nice wine at a reasonable price and if we are not producing the quality, let others come in. But I think we are,” he said.

Meanwhile, the Indian drinker — increasingly moving away from the traditional whisky tipple — is stuck in the middle. “Wine consumption has become an elite activity,” Reva Singh, publisher of Sommelier India, a wine magazine, said. “Because of the prices, middle class consumers end up drinking plonk. What’s more, there’s no incentive for Indian producers to better their product to meet the needs of a discerning market.”

Aashish and Mona have drained their glasses. They say they appreciate the local produce but would like the option of foreign brands at a fair price. “It’s always good to have competition because it gives you more choice,” Aashish said.

India’s bar tab

— 667,000 nine-litre cases of wine sold every year

— 15% market share of imported wines

— €43m European Union spirits exports to India in 2005

— 1% Scotch whisky market share of 110 million cases of spirits sold

— 90m cases of beer sold each year

Sources: SWA, CEEV, UB Group, Centre for European Policy Studies)

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