Consumption of liquor, even in small quantities, may have dire health consequences but prohibition has never been an effective strategy to reduce consumption. Historically, prohibition has never worked, and was often found to have created negative externalities which in turn required newer policies to contain them. This has also led to the growth of a more powerful State and its bureaucratic machineries which had consequences on civil liberties and privacy of individuals. Studies often highlight the 18th amendment of the United States constitution that prohibited the manufacture, sales, and transportation of liquor, to understand consequences of a ban. The amendment led to the rise in organised crime in US, which forced reversing the ban at a later stage.

Across the world banning intoxicants has had paradoxical results. In India the effects have been similar. The latest hooch tragedy in Bihar during the festival of Holi is just another consequence of banning liquor. The problem with alcohol or for that matter any intoxicant is that the demand in the market is never curbed through a ban. What happens is that when one intoxicant is banned, it leads to individuals looking for substitutes. A market for substitutes replaces the banned commodity.

In most cases this market develops informally and slowly becomes illegal. The cost of substitutes are likely to be high in the illegal market while there is no guarantee on the quality. Gujarat is a case in point. The state, ever since Independence, has been declared a dry state. However, reports indicate availability of liquor and the steady growth of illegal markets.

Why then do policy makers attempt to ban alcohol?

A legalised commodity is a much better option than a complete ban. In the case of most intoxicants, the standard policy has been to reduce the size of the illegal market. The reason, often discussed, is that illegal markets have a slew of negative externalities. There are no standards on quality, there are no ways to report fraud or cheating, there is always an element of coercion, there is the possibility of violence, and, finally, there can be loss of valuable lives.

Article 47 of the Constitution has often been used by the states to justify partial and full prohibition of intoxicants. The cited reason is the impact on health. While partial prohibition has been effective in a legal market for alcohol, complete prohibitions have not worked. A recent failed attempt with prohibition has been the case of Kerala. The state withdrew from the policy under less than three years. The reason was primarily the loss to the exchequer and the simultaneous growth of a market for banned drugs. When legal the State tends to gain through taxes. While the policy of prohibiting liquor was reversed soon enough, the market for drugs persisted. In many of the reported cases of drug abuse it is noted that young people are the major consumers, and perpetrators of associated violence.

Bihar’s experiment with prohibition has survived longer; however, at the cost of several lives. The response in the context of a hooch tragedy has always been to raid hotspots and destroy and capture equipment used for manufacturing. This happens alongside a number of arrests made during the process. However, this is not a sound policy and the effort and cost involved for the State is huge. For Bihar the alternatives to banning alcohol needs to be adopted at a quick pace.

Studies by US economist Jeff Miron has shown that it is difficult for the State to understand and predict irrationality in the context of complete prohibition. He raises a pertinent question on whether State control will help irrational consumers to better their decision-making when a ban is imposed. If not and if such policies only target the rational consumers, we need to take it with a pinch of salt.

In an illegal market such irrationalities have dangerous consequences. The growing hooch tragedies in Bihar reflects poorly on the law and order conditions in the state. Even though a policy of complete ban has been enforced, the increasing attempts to manufacture hooch shows that people are not compliant with it. Non-compliance with the rule of law is bound to have repercussions in the near-term. It is all the more reason for the State to act fast and reconsider the ban.

Rahul V Kumar is Research Fellow (Market Economics) at Centre for Public Policy Research. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research. 

Image Source: Hindustan

This article was published in Money Control on March 25, 2022. Click here to read.

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Rahul V Kumar is a Research Fellow at CPPR. He has an MA in Economics and an MPhil in Applied Economics and International Relations from Jawaharlal Nehru University (New Delhi). Currently, he teaches graduate students.

Rahul V Kumar
Rahul V Kumar
Rahul V Kumar is a Research Fellow at CPPR. He has an MA in Economics and an MPhil in Applied Economics and International Relations from Jawaharlal Nehru University (New Delhi). Currently, he teaches graduate students.

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