The growing debate around liquor consumption in Kerala following the delay in issuing the Abkari policy statement in 2014 provides suitable grounds to discuss several important issues surrounding liquor production and consumption in India. A discussion is essential as liquor is going to last for a long time and a complete prohibition should not be expected in the near-term whatever be the stance of the individual state governments. But it is crucial that we understand what we are talking about before taking one or the other side on drafting a tighter liquor policy. The four southern states of India are special because they are not only the states where the state government directly involve themselves in various aspects of production and distribution, but also the states where consumption has remained relatively high compared to the rest of India. This points towards the fact that state control need not necessarily mean control over consumption of liquor, although that is the most prevalent explanation provided. In the northern states of India where license systems exist and private players are allowed entry into retail, consumptions levels are much lower.
The economic rationale behind alcohol industry
The alcohol industry is a major tax payer to the economy and this mostly comes from the steadily increasing customer base. In states like Tamil Nadu and Kerala, the state owned beverages outlets made revenue to the tune of 21,000 crore and 8,000 crore Rupees respectively during the financial year 2012-13. The latest National Sample Survey (NSS) reports estimates that the percentage of households consuming intoxicants (ganja, toddy, country liquor, beer, foreign refined liquor/wine and other intoxicants) have been increasing since 2004-05. Between 2009 and 2012, it has increased for both urban as well as rural areas.
In addition, the export and import of liquor has also been steadily rising since 2007.
It has been observed that seven of the top twenty internationally sold brands are Indian products.
Thus from the point of view of the federal government, the sector cannot be neglected for the sheer economic potential it holds both within and outside the country. Then the next question is, how should the State deal with this sector?
The State’s role
The role of the State should be well defined in this context. Should it be involved in operating the liquor industry (by controlling production to distribution) or should it promote and enforce strict quality regulations alone. Once the State detaches itself from the role of the seller it can assume the status of an unbiased observer and enforce a regulatory authority to monitor the quality and standard of liquor sold in India. We have already delayed ourselves in enforcing standards in production and consumption of liquor. For instance, whiskey is manufactured in India from ethanol made from molasses, which technically is called rum elsewhere. However, very few consumers know these differentiations. It was as late as 2012 that the Food Safety and Standards Authority of India (FSSAI) came up with a draft report on the standards to be maintained in preparing alcoholic beverages in India.
In addition to promoting standards the national government can also promote our products internationally. The popularity of molasses based liquor from India in foreign nations should be exploited to boost sugarcane production which could directly be beneficial to the farmers struck in the vagaries of sugarcane prices. We have approximately 6 million farmers directly involved in sugarcane cultivation who are yet to receive a competitive price for their product. Liquor is a sector that is valuable for the state in terms of revenue earned, but requires a lot of corrections especially with respect to the standards in production and consumption. The role of the State will be most valued in maintaining these standards through a powerful regulatory institution while promoting both the national and international market. India has much to gain by not trivialising these issues to mere moral concerns. Complete prohibition could just backfire in a manner similar to the events that followed the 18th Amendment of the US constitution.
NSS Report No. 555(68 /1.O/1), Level and Pattern of Consumer Expenditure 2011-2012, 68th
Round July2011-June 2012, Government of India February 2014
Data for this is available in the World Integrated Trade Solutions (WITS) database.
By Rahul V Kumar
Research Consultant, Centre for Public Policy Research