A $65 Billion Market Under Scrutiny

India stands as the premier global export market for Scotch whisky by volume, yet a burgeoning regulatory dispute threatens to upend a multi-billion-dollar trade dynamic. Following the landmark implementation of the India-UK free trade agreement in July, which was widely celebrated for slashing import tariffs, Indian customs officials have launched an aggressive investigation into bulk Scotch whisky imports.

The regulatory scrutiny has sent ripples of concern through major international and domestic liquor conglomerates, including industry giants Diageo and Pernod Ricard, alongside prominent Indian firms like Radico Khaitan and Allied Blenders and Distillers. Tax authorities have conducted searches at various corporate offices in recent weeks, seeking to reclassify how bulk spirits enter the country.

The Fine Print of the India-UK Pact

Whisky tariffs served as one of the most contentious sticking points during years of protracted negotiations leading up to the trade deal's July 15 rollout. Under the terms of the historic pact, New Delhi agreed to immediately lower import taxes on certain Scotch imports from 150 percent down to 75 percent, with a phased reduction to 40 percent over a 10-year period.

While the British government hailed the agreement as a major victory for iconic UK products, including gin and various whiskies, the domestic application of these tariff cuts has quickly run into bureaucratic roadblocks. Indian state-level taxes and supplementary levies remain high and vary widely across the country, but the foundational duty reduction was intended to provide immediate price relief.

The Customs Classification Battle

At the heart of the dispute is a fundamental disagreement over product classification. Privately, Indian government officials have argued to industry stakeholders that bulk Scotch imports do not qualify for the reduced 75 percent tariff rate.

While bottled Scotch brands continue to enjoy the lowered duty, tax authorities contend that bulk shipments—frequently utilized to manufacture popular domestic spirit brands—fall under a separate customs classification introduced earlier this year. Specifically, officials are applying the code for "compound alcoholic preparations of a kind used for the manufacture of beverages," which continues to attract the prohibitive 150 percent tariff.

Industry experts strongly reject this interpretation. Rajnish Singh, founder of regulatory advisory firm Yaana Advisors, emphasized the distinct nature of the product. "Compound alcoholic beverages are essentially flavoured or modified alcohols, whereas bulk Scotch Whisky is a distilled alcoholic beverage produced with malted barley and water," Singh noted.

Why Bulk Imports Matter

Bulk shipments form the backbone of the Scotch trade in India. According to the UK-based Scotch Whisky Association, India imported the equivalent of more than 220 million bottles in 2025 alone. Industry estimates indicate that approximately 80 percent of these imports arrive in bulk.

These shipments are primarily destined for Indian-Made Foreign Liquor (IMFL) production, blending imported Scotch with local grain spirits and ingredients to create accessible products tailored to domestic preferences. Prominent examples include Pernod Ricard's Blenders Pride, a blend featuring imported Scotch malts from Chivas Brothers.

Diplomatic Intervention

As tensions mount, diplomatic channels have activated to safeguard the trade agreement. Following initial reports of the enforcement actions, a spokesperson for the UK government confirmed that bilateral discussions are underway. "We are working with the government of India to resolve this issue to ensure UK businesses can export under the tariffs agreed in the trade deal," the spokesperson stated.

With upcoming talks scheduled between Indian trade authorities and industry representatives, the resolution of this dispute will serve as a crucial test case for the future implementation of the India-UK free trade framework.