India-UK FTA uncorks a smoother pour for premium spirits, but state taxes could still sour the drink

After more than two years of negotiation, India and the U.K. have formally concluded a long-awaited Free Trade Agreement (FTA), a deal described by both governments as “ambitious and mutually beneficial.” For the alco-bev sector, particularly the premium spirits segment, the FTA could serve as a crucial catalyst for growth and profitability—though the road ahead may still have its share of regulatory potholes.

One of the most closely watched elements of the deal is the phased reduction in import duties on U.K.-origin whisky and gin. Currently pegged at a steep 150%, these tariffs will be halved to 75% immediately, before gradually falling to 40% over the next decade, according to a report by Elara Capital. This marks a potentially big shift for India’s premium alcohol market, where Scotch and other imported spirits are often priced out of reach for the average consumer.

“This is a significant move for spirits players in India,” says Karan Taurani, Senior VP, Elara Capital. “The tariff reduction can make Scotch whisky more affordable, thereby boosting volumes in the premium segment. Companies like United Spirits and Allied Blenders, which already have premium portfolios, stand to benefit meaningfully.”

The changes aren’t just about accessibility—they also hold implications for production costs. Imported Scotch serves as a key raw material for manufacturing premium Indian whisky, which is typically a blend of Indian grain spirits and imported Scotch malts. Lower import duties can thus reduce input costs for domestic producers.

Abneesh Roy, executive director at Nuvama Institutional Equities, believes this could have a cascading impact. “Scotch, a raw material cost for premium whiskey, could likely come down, leading to cheaper alcohol for consumers. This can boost volumes at the premium end. Potentially positive for United Spirits, Allied Blenders,” he says. He adds that while the FTA has been in the pipeline for nearly three years, the finalisation of the deal is a positive development, particularly for companies that have already aligned their strategies with premiumisation trends.

United Spirits, owned by global giant Diageo, has been one such player. The company has leaned heavily into premiumisation in recent years and has benefitted from state-level reforms—such as the reduction of taxes in Karnataka and regulatory clarity in Andhra Pradesh. The FTA now adds another structural tailwind.

“This landmark treaty will enable improved accessibility and choice of Scotch for Indian consumers, the largest and most exciting whisky market,” said Praveen Someshwar, MD & CEO, Diageo India, welcoming the announcement. “We congratulate Prime Minister Modi and Prime Minister Starmer for concluding this historic agreement.”

However, while the headline benefits of the deal are clear, industry watchers are urging caution on one front—state-level taxation. Alcohol in India remains outside the purview of GST and is subject to state-specific excise policies. This gives individual states the power to introduce compensatory taxes, potentially nullifying the benefits of reduced import duties.

“We need to monitor if any state sees this as an opportunity and hikes taxes. This can still happen sporadically,” warns Roy. “If states do that, the benefits of reduced tariffs may not fully reach consumers or producers.”

Nonetheless, Elara Capital maintains a constructive outlook. “Despite this risk, the net effect remains positive,” says Taurani. “Premiumisation is already a key theme in the alco-bev sector, and this deal supports that trajectory. It could also encourage more innovation in the high-end segment, with better-quality inputs becoming more viable.”

The agreement also comes at a time when global spirits majors have been ramping up their investments in India, drawn by a rising middle class and shifting consumer preferences. The premium whisky segment, in particular, has witnessed a steady uptick in demand, even as lower-priced categories have seen stagnation or slower growth, according to Elara Capital report.

For public market investors, the deal could add to the sector’s momentum. United Spirits stock, for instance, has performed well in recent years on the back of premiumisation and regulatory tailwinds. “We maintain a BUY rating on United Spirits from a medium- and long-term perspective,” says Roy. “We also expect a strong Q4.”

While Scotch may not become cheap overnight, the prospect of more accessible high-end spirits and cheaper raw materials has stirred cautious optimism across boardrooms in the alco-bev sector. The FTA with the UK may also provide a template for future bilateral trade deals involving alco-bev. Industry executives will be closely watching how the tariff reductions are implemented, and whether they translate into actual market growth without being offset by state-level interventions. For now, the deal marks a long-anticipated turning point for India’s alcohol industry—especially for those betting on the premium segment.