Commentary

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Nitin Pai 10/05/2020 Nitin Pai 10/05/2020

Crowds at booze stores reveal an addled approach to policy

The long queues outside liquor stores last week attracted a lot of attention, commentary and government reaction. Many people were dismayed that among the first things their compatriots did after the relaxation of the lockdown was to make a beeline for the liquor store. In an unusual demonstration of alacrity, the Delhi government immediately imposed an additional 70% tax on retail liquor sales, ostensibly to put some brakes on demand and reduce coronavirus outbreak risks. The sense of moral outrage was compounded after a Bangalorean customer triumphantly shared a ₹52,000 liquor store receipt on social media. This too caused the Karnataka excise department to rapidly rise to the occasion and come down hard on the retailer concerned for exceeding the maximum quantity that can be sold to a person at a time.

Anupam Manur 29/10/2018 Anupam Manur 29/10/2018

The addictive nature of bad policies

Apart from being ineffective, prohibition also has massive unintended consequences. Prohibition pushes the market underground and actually increases the crime rate, leads to a loss in state revenue, loss in employment and livelihoods, increases corruption, and ultimately harms the very people it seeks to protect.

Al Capone, the infamous prohibition-era US gangster, once remarked, “I am like any other man, all I do is supply a demand.” In Bihar, the smuggling supply chain has already been well established. Around 6.5 lakh raids have been conducted and 1.22 lakh people have been arrested. Altogether, 16.4 lakh litres of Indian-made foreign liquor and around 12.4 lakh litres of various types of country liquor have been seized so far since the law was enacted in 2016. The seizures and arrests reflect the prevalence of the problem. Some of the seized illicit liquor started disappearing from police stations as well.

Further, crime statistics also betray the ineffectiveness of the law. Total cognisable crimes rose 11% in April 2016 to December 2017 period compared to the same period before prohibition. Crimes related to other prohibited substances have increased as well.

There are also significant socioeconomic losses. At least 35,000 direct jobs have been lost as 21 alcohol manufacturing plants and 5,500 retail outlets have been shut down. Add to this the number of indirect jobs lost, because of forward and backward linkages, and the number becomes daunting. For instance, tourism in Bihar has taken a hit. The food and beverage sector revenue declined by around 30%. Room occupancy rates have drastically fallen and corporate conferences and events have almost completely stopped.

Finally, as expected, Bihar’s finances have taken a toll. The 2017-18 financial year saw an approximate loss of ₹5,500 crore because of lost revenue from excise and value-added tax (VAT). To compensate for this, the Bihar government has raised the VAT on 600 other items and has also resorted to higher state borrowing, which has pushed up the fiscal deficit. The loss in revenue from taxing alcohol has also impacted government expenditure. Expenditure across crucial sectors, such as education, pension, health, and energy was much lower than the budgeted figure. The political parties promising prohibition in Madhya Pradesh are also promising a farm loan waiver, another bad policy that is contagious. Funding a farm loan waiver, while losing out on the excise revenue, would derail state finances.