A proposed 5 per cent US tax on remittances sent abroad by non-citizens is raising alarm in India as it may hit Indian households and the rupee, economic think tank GTRI said on Sunday.
The provision is part of a broader legislative package titled 'The One Big Beautiful Bill' introduced in the US House of Representatives on May 12.
It targets international money transfers made by non-US citizens, including green card holders and temporary visa workers like those on H-1B or H-2A visas. The proposed levy will not be applicable to US citizens.
"The proposed US tax on remittances sent abroad by non-citizens is raising alarm in India, which stands to lose billions in annual foreign currency inflows if the plan becomes law," the Global Trade Research Initiative (GTRI) said.
For India, the stakes are high as the country received USD 120 billion in remittances in 2023-24, with nearly 28 per cent originating from the US, it added.
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"A 5 per cent tax could significantly raise the cost of sending money home. A 10-15 per cent drop in remittance flows could result in a USD 12-18 billion shortfall for India annually," GTRI founder Ajay Srivastava said.
He said that the loss would tighten the supply of US dollars in India's foreign exchange market, putting modest depreciation pressure on the rupee.
"The Reserve Bank of India may be forced to intervene more frequently to stabilise the currency. The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully," he added.
In states like Kerala, Uttar Pradesh, and Bihar, millions of families rely on remittances to cover essential expenses like education, healthcare, and housing.
Srivastava said that a sudden decline in these flows could hit household consumption hard, at a time when the Indian economy is already navigating global uncertainty and inflation pressures.
By taxing the global capital flow, he said, the US could disrupt a key channel of global development financing, reduce household income in poorer nations, and weaken demand in economies already grappling with inequality and instability.
The development assumes significance, as India has proposed at the World Trade Organization (WTO) to lower the cost of cross-border flow of capital or remittances.
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Indian premium whisky distillers expect that the duty concessions on Scotch imports under the India-UK free trade agreement will help improve their margins and speed up growth.
A lower customs duty on bulk Scotch, used by many Indian Made Foreign Liquor (IMFL) companies for blending, will reduce costs and make premium spirits more affordable in the Indian market, which is the world's largest for whisky, they added.
Under the trade pact, announced earlier this month, India will reduce duties on UK whisky and gin from 150 per cent to 75 per cent, and further to 40 per cent by the tenth year.
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Home-grown players like Radico Khaitan, Allied Blenders & Distillers (ABD), and John Distilleries said the move will give Indian consumers more choices and better access to high-quality spirits.
Radico Khaitan, the largest importer of Scotch whisky for blending and which owns award-winning single malt 'Rampur' and Jaisalmer Indian Craft Gin, said the FTA has "significant potential" for cost advantages through the expected reduction in customs duties.
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"Radico plans to import scotch malt worth Rs 250 crore in fiscal year 2025-2026, and this treaty, therefore, benefits us substantially," Radico Khaitan MD Abhishek Khaitan told PTI.
Sharing similar views, Allied Blenders & Distillers (ABD), makers of Officer's Choice Whisky, said it has opened new avenues for collaboration, besides helping make the super-premium to luxury portfolio more accessible.
"...this agreement will also benefit ABD's Super-Premium to Luxury portfolio by making these products more accessible. We anticipate this will offer Indian consumers greater choice and the opportunity to enjoy a wider range of high-quality spirits," the company said.
According to data from the Scotch Whisky Association, India was the largest market for Scotch by volume in 2024, with 192 million bottles exported. In value terms, it ranked fourth with exports worth 248 million British pounds.
However, Amrut Distilleries MD Rakshit N Jagdale raised concerns about the duty concessions, saying the steep reduction in duties could hurt India's domestic alcohol industry.
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The reduction of import duties on Scotch whisky from 150 per cent to 75 per cent in one step is "alarmingly" steep, he said.
"This move risks disincentivising future expansion projects within the Indian distillation sector projects that not only contribute to manufacturing GDP but also generate significant direct and indirect employment across the supply chain, from agriculture to retail," he said, adding that it will help increase in import volumes and exports are likely to be outpaced.
While openness to global trade is vital, it must not come at the cost of long-term self-reliance, manufacturing growth, and job creation, Jagdale added.
John Distilleries Chairman Paul P John said this FTA may have a short-term impact on Indian products, but he hopes that it will allow better ease of business for Indian products in the UK.
On the impact on retail pricing, John said, "At this stage, it's premature to comment on specific pricing strategies. We are monitoring the developments of the India-Uk FTA and will assess the implications once the details are finalised".
According to data from the Confederation of Indian Alcoholic Beverage Companies (CIABC), sales of IMFL have grown 14 per cent by volume to 385 million cases in FY23, in which the premium products priced over Rs 1,000 per 750 ml bottle have grown over three times from the industry average to 45 per cent.
In FY23, whisky sales volume of 243 million cases of 9 litres each was recorded.
Moreover, some of the homegrown brands of single malts as Amrut, Paul John, Indri, Rampur and Gianchand, among others, have even surpassed global brands in 2023.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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