Dec 6, 2020

4 min read

Impact of liquor on Indian Economy

“Sabko maloom hai main sharaabi nahin, Phir bhi koi pilaye to main kya karoon”Pankaj Udhas’s couplet explaining the excuse of every drunkard resonates the classic relationship of government with liquor and the revenues collected from it. To simply say is , the more the government enjoys the revenue collection from liquor , the more tendency it has to completely rely on it . One of the most important question that arises is why does liquor sales matter to States ? Sales tax on alcohol is the State’s single most largest and easiest revenue source . According to the RBI report , Sep 2019–20 ( ‘State Finance : A study of budgets of 2019–20 ), excise duty on alcohol contributes to 10–15 % of State’s own Tax Revenue i.e. second/ third largest contributor to State’s Own Tax Revenue ,GST being the largest .

Amid public health crisis i.e. COVID-19 , liquor sale was put on halt on March 25 ( first phase of lockdown ) . But , eventually considering State’s precarious financial position and their concerns regarding Economy , the ban was lifted with the third phase of lockdown on May 4th . The Quint, “ Why States are relying on people’s Alcohol addiction to save lives ?” According to the reports , 21 States enjoys a total of 15% of State’s own Tax Revenues from taxes incurred from liquor sales , 57.8% from Mizoram , 55.4% from Puducherry , 47.2% from Meghalaya, 31.8% from Arunachal Pradesh, 31.5% from Telangana ( “Genie in the bottle” ) . A total of 12.5% was incurred in the financial year 2019–20 . One of the major relation between alcohol and State’s Economy is that alcohol sales don’t come under GST as a result of which State enjoys the freedom to regulate the production of alcohol and exercise exclusive powers in designing State specific Excise rates . The total earning, in 2019–20 ,from 29 States and UT’s of Delhi and Puducherry was a total of Rs 1,75,501.42 cr i.e. 16% higher than what it was in 2018–19 ( i.e. 1,50,657.95 cr ) . Even after a 70% hike in price of liquor , long queues can be seen outside liquor stores . This is the kind of profit profit situation for the State government and their tax collection drives that we are talking about. The “special corona fee” in the name of lockdown or “special duty on liquor” in states like UP, while in states like Bihar and Gujarat , “ prohibition tax “ , all adds to the State’s tresure trove. Resources from UP govt officials states how just liquor sales add to a total of 2500cr while they are still hoping to cross 3000cr . Lack of transparency and no national database for systematically compiling this information imposes a great deal of challenges for policy researchers in obtaining accurate figures .

Undoubtedly liquor immensely impacts Economy on a large scale , RBI reports of 2019–20 shows how excises levied on liquor and other alcohol based items contributes to 12.5% of the total State’s own Tax Revenue collection. Many studies also show how increase in price has not only led to raise in revenue but also discouraged consumption . Ongoing health crisis was controlled a lot through the imposition of lockdown but at the same time it brought severe economic crisis . Movendi International reports shows how lifting the ban on liquor to obtain revenue invited a great deal of violence esp domestic violence , flouting of social distancing rules , and physical and mental harm , adding to the burden of Indian health care emergency services and resources i.e. cost of alcohol harm overpowered the revenue incurred from it . According to Global Burden of Disease study , there has been an increase in death tolls in COVID-19 due to more alcohol consumption , which caters in weakening the immune system . WHO also recommended to maintain restricted availability of alcohol to help tackle the health crisis . Recent modelling study also shows how India loses 1.45% of its GDP due to alcohol which is much greater than country’s entire health spending i.e. 1.28% of GDP . Global Health , “ Alcohol: Bad for Indian outbreak, worse for Indian Economy “ . No doubt, liquor is one of the major contributors to the Indian economy but what is being put at stake and how far is that justified in maintaining this economic dilemma needs to be considered .

-Shruti Pal