Bar bills in India set to fall

Luxury hotels in India are well known for charging some of the highest prices in the world for drinks. A double vodka and tonic for $40? This could be a thing of the past thanks to an unnamed Indian cabinet.

The senior minister went to a central Delhi five-star hotel some months back with friends. He insisted on paying the bill and was shocked to see the charges. Consequently, the government has warned luxury hotels that they could lose their zero import duty benefit if they continue to charge exorbitantly for drinks, the industry is now desperately working out an upper limit to which liquor prices can be "marked up" - that is, charged over and above the cost of serving the drink.

The industry has submitted a list of lower prices to the Directorate General of Foreign Trade (DGFT) and said that some hotels have even started charging in accordance with the new rates.

If the rates come into effect, the cost of a small peg (30ml) of Johnnie Walker Blue Label will reduce to Rs 800 ($20) from Rs 1,250. A peg of Chivas Regal will come down from Rs 550 to Rs 425 ($10).

Hotels get foreign liquor under "service from India scheme (SFIS)", which makes it exempt from import duty. But the minister found this benefit was not being passed on to customers.

Later, leading hoteliers were asked to come clean on some points - what is the range of mark-up done by different luxury hotels and why is the benefit of SFIS not passed on to consumers?

The minister even asked why the SFIS benefit should continue if hotels sell foreign liquor at such exorbitant rates. The idea of this scheme was to promote India as an upmarket tourist destination and help earn more foreign exchange.

"Hoteliers admitted that the mark-up at some properties was as high as 1,000%, though others were in the range of 500% to 800%. The industry tried to explain that overall costs had gone up and that profit margins on liquor (after recovering all expenses of serving them) was just 15-20%, but the government insisted on a mark-up ceiling," a government source said.

Though no decision has been taken, the authorities are learned to be keen on a ceiling of 300% to 350% for imported liquor and 200% to 250% for foreign wines. The industry, keen not to lose the SFIS benefit, may be willing to settle for a 400% mark-up as an upper limit.

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