The country was under intense international pressure to reform their system, which subjects all imported spirits to an additional tariff and tax burden of up to 550 per cent. Indian spirit drinks can be imported into the EU tariff-free.
Industry sources expected the Indian government to announce a cut in its budget yesterday to comply with WTO rules. It was hoped a budget cut would lead to complete access by 2012.
However, the Indian government said agriculture "must top the agenda of policy-makers" and made no concessions to cut import taxes. The finance minister said that, unless India, now Asia's fourth-largest economy, could be self-sufficient in food, this could upset "macro-economic growth stability and growth prospects", effectively closing the door on discussions.
Gavin Hewitt, chief executive of the Scotch Whisky Association, said: "India has failed its WTO challenge and continues to deny consumers' choice and fair market access for Scotch whisky and other imported spirits."
He said the budget was the "last opportunity" for India to reform the system.
"We are urging the EU to take the matter to a WTO panel. India's discriminatory tariff and tax regime for imported spirits must be reformed in line with international trade rules," he added.
Its understood the Chancellor, Gordon Brown, and the Trade Secretary, Alistair Darling, raised the issue during their recent visits to India.
The SWA sees India as one of the most important emerging markets for the industry.
"Of the 110 million cases of spirits produced each year, less that one million goes to India. We need a level playing field and at least now there will be a WTO panel set up so hopefully it will be solved over the next year," added Hewitt.
India fears that Scotch's reputation as a middle-class drink will quickly erode its own market share. Analysts believe domestic interests are using traditional Indian protectionist instincts for "agricultural" or grain-based products to keep Scotch out.
Drinks analyst John Wakely, a former director of investment bank Lehman Brothers, said the potential takeover of Whyte & Mackay by Vijay Mallya's UB Group could force a change. Wakely said: "If Mallya gets Whyte & Mackay he has an obvious incentive to promote lower excise taxes so that he can utilise his distribution channels against the threat of foreign owned vodka companies establishing their own channels."
A spokesman for the Edrington Group, producers of The Famous Grouse and The Macallan, said India has huge potential but admits it will be some time before it is developed fully.