27 Jan 2020
Posted in Retail
India’s proposed changes in duty free purchase limits may dent the country’s duty free market growth prospects, says GlobalData
In January 2020, India’s Commerce and Industry Ministry proposed plans to limit duty free alcohol and cigarettes sales to inbound travellers – limit on alcohol bottles would be reduced to one bottle or one litre from the current two bottles or two litres, while cigarettes would be slashed completely, says GlobalData, a leading data and analytics company.
The ministry also plans to reduce the value of goods and gifts that a passenger can get into the country without paying import duty which is currently capped at US$712.65 (INR50,000). The proposed changes are a part of the government’s exercise to limit the import of non-essential goods into the country and make the duty free limits in par with other countries such as the US, China, and South Korea.
India continues to be the fastest growing duty free market globally. Duty free sales in the country grew at a staggering compound annual growth rate (CAGR) of 23.1% during 2013-2018 to reach US$1.0bn in 2018 and is forecast to grow at a healthy CAGR of 19.2% to reach US$2.5m by 2023, supported by its evolution as a major investment center driven by the growth in business travel and India’s rising middle class with overseas travel aspirations. The new proposals dent the growth prospects for both the industry and retailers alike.
Vijay Bhupathiraju, Retail Analyst at GlobalData, comments: The proposed changes, if implemented, will negatively impact the duty free market in India as alcoholic beverages and cigarettes account for a significant share of total duty free sales. Drinks is the largest product category sold in the Indian duty free market with category sales at US$695.7m in 2018, accounting for 66.8% of overall duty free sales. However, the proposed slashing of the limit on alcoholic drinks to half is forecast to reduce the category sales by nearly 25%.
“On the other hand, tobacco is the fourth largest product category with its sales at US$64.7m (6.2% share) in 2018. If the proposed plan to completely prohibit inbound tourists from purchasing cigarette cartons at duty-free shops is to be believed, it results in complete nullification of inbound spending on cigarettes, slashing the category sales by as high as 50%. If the proposed changes are enacted, duty free retailers in the country need to diversify their offerings to include essential product categories such as cosmetics & toiletries, food, and jewellery & watches to offset lost sales in liquor and cigarettes. The move is also a jolt to non-aviation revenues for airports, impacting the overall growth of airport retail in an otherwise fast growing airport retail market.