India imported more cases of bulk wine than labelled wine from Australia in 2010. But why are importers tight-lipped?
According to a recent article in an Australian trade publication, Wine Australia, India imported around 66,000 cases of bulk wine from Down Under last year, almost thrice the estimated amount of bottled-in-origin (BIO) wines (which have the original labels from the exporting country) imported in 2010.
On the basis of the above article, Mr Subhash Arora, president of the Indian Wine Academy, has stated in his website that "the past several years have been continuously indicative" that has been a greater import of "bulk wine than bottled wine."
Mr Arora says in his website: "Import of bulk wine is a good way of saving costs of winemaking and Australia offers a wide choice."
But no producer in India is willing to admit that there has been such a huge quantum of bulk wine imports, writes Mr Arora.
So if wine producers are not importing these massive bulk quantities, then who is?
There lies the rub. In India, bulk wine can be imported on the payment of 150% customs duty of the Cost, Insurance & Freight (CIF) value, which is also same for BIO wine.
But the pricing of alcohol is a State subject. Maharashtra has exempted excise duty for wines produced in the state, but levies an exorbitant 150% special excise duty on domestic wine imported from neighbouring states like Karnataka.
What this means is that importers of wine based in Maharashtra can affix their own label on such bulk imports, and sell them at a much higher price-because their sale price will be much higher, but their cost price would remain the same.
"Wine producers are denying that they are importing wine, so that they get excise duty benefits," Subhash Arora, president of the Indian Wine Academy, told Moneylife.
Mr Arora states in his article that import of bulk wine is a good way of saving costs of winemaking and Australia offers a wide choice. China, as it has been doing in the recent past, is also flexing its financial muscle here and has been quick to tap the Australian market for its bulk wine imports.
On 17th January, Rajeev Samant (founder and CEO of Sula Vineyards, one of Maharashtra's and the country's leading wine producers), commented on the above article posted on the Indian Wine Academy website: "So where do you think that bulk is going, Subhash? Do share your unparalleled knowledge with us!"
When Moneylife pointed out that Mr Samant had commented on the Indian Wine Academy's website, Mr Arora was quick to point out that Sula was not part of this game.
But the question remains, who has been taking advantage of Maharashtra's liberal excise duty regime?
The company’s scrip is languishing. It has been slapped with a show-cause notice for alleged market manipulation. So why is it in such a privileged index?
Himachal Futuristic Communications Ltd (HFCL) continues to be part of an elite group of companies-in the S&P CNX 500 index made up of 500 select companies listed on the National Stock Exchange (NSE). The index is a benchmark of 'quality' companies of a certain size and liquidity.
Why is HFCL still in this list? Its stock price is languishing at its current level for the past six years. Its business model is not exactly robust. In February 2010, market regulator Securities and Exchange Board of India (SEBI) disposed the case against the company for which the company had to cough up Rs10 crore under the consent order.
The case dates back to the 1999-2001 period of the Ketan Parekh scam. Mr Parekh, the main accused in the fraud, allegedly rigged share prices of 10 companies in cahoots with various promoters, including HFCL. In 2001, SEBI had told the Joint Parliamentary Committee investigating the scandal that Zee and HFCL had diverted Rs515 crore and Rs700 crore, respectively, to Mr Parekh.
A show-cause notice was sent to the directors and associates of the company in 2004 by SEBI. While the proceedings were in progress, on 31 May 2008 and 4 June 2008, HFCL proposed a settlement of the proceedings through a consent order.
SEBI then constituted a high-powered committee which also recommended settling the issue if the applicants agreed to make payment of Rs10 crore towards settlement charges.
Despite this, the company remains a part of the S&P CNX 500. According to a report in November 2010 of the Economic Times, the Society for Consumers' and Investors' Protection, a Delhi based not-for-profit organisation, complained to SEBI, alleging HFCL's acquisition in a private firm Sunvision Engineering Company was a ploy by the promoters to raise their stake in the company.
Apart from a minimum listing record of six months on the exchange and minimum record of three years of positive net worth, market capitalisation, industry representation, trading interest and overall financial performance are the criteria for the selection of a company in the NSE CNX S&P 500 index.
HFCL is also widely seen to be fronting for Reliance Industries. Infotel Broadband Service, a tiny Internet services provider-promoted by Anant Nahata, son of HFCL promoter Mahendra Nahata-was the only winner of the pan-India license for broadband wireless access a few months ago. Within a few days, Reliance Industries announced that it would acquire 95% stake in Infotel Broadband, making a re-entry into the Indian telecom market.
A detailed email was sent to NSE questioning the reasons for inclusion of HFCL in the NSE CNX S&P 500 index, but Moneylife has yet to receive a reply till the time of writing this piece.
Since index funds are supposed to follow indexes mechanically, poor quality of stocks in an index forces these funds to buy such companies blindly. Unfortunately, it is not just NSE 500 that is flawed, but even the elite Nifty 50 and also the quality of companies included in the derivatives segment.
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