Masking a Major Issue – The State and its Dilemma on Liquor Policy in Kerala

Context

The state government in Kerala delayed in announcing its liquor policy for the year 2014-15. What followed this delay was a closure of bar hotels across the state. On the eve of elections, there were two groups in the population which responded to the delay. One group was judgemental on the outcomes of such closures and the other group were merely muted observers. So what were the concerns of the former? On the forefront this groupincluded the owners, employees and their families of the bar hotels that were locked up from functioning.When licenses were granted a few days later, out of the 712 existing bars, approximately 300 odd bars were denied extension of their licence to sell liquor. The projected number of people in this category who were affected by the government policy were estimated around 35,000 to 50,000. Other groups which responded to the policy delay included the Catholic Church (which is for a total prohibition); a left politician who alleged that that the policy led to the collection of approximately 25 crores as bribe by the government servants and people who felt that the delay was worthwhile for the government to contemplate on strengthening the policy of prohibition. There were also allegations from political rivals that the government decision to delay bar licenses were a tactic to garner the support of women in families affected by this malady.The second category of muted observers were minimal in this state, where the per capita consumption of liquor is one of the highest in the country.

Now for the context in which these concerns on the state governments liquor policy owe significance. Kerala has had series of bad experiences with spurious liquor. A much discussed incident occurred in Vaypin (Kochi) in which approximately 78 consumers died and many lost their eyesight. These tragediesbecame importantly citied in justifying the state monopoly in procurement and distribution of liquor in Kerala. The Abkari Act 1984 was amended to initiate this change.In the course of time the Kerala State Beverages Corporation (KSBC) was given the monopoly status as distributor of Indian Made Foreign Liquor (IMFL). In addition to this, the major policies initiated has been to restrict the consumption of liquor through a series of regulations. This included banning arrack, hiking excise duties on liquor and so on.In the political realm these were argued as protective measures to help families distressed by alcoholic fathers, brothers and sons.Without doubt, the recurrence of incidents like that in Vaypin, reduced following such restrictions and takeover by the KSBC. However such incidents could not be completely eliminated. For instance hooch tragedy in Malappuram district in 2010 led to the death of more than 20 consumers. Thirty years post the liquor tragedy at Vypin several people still fall prey to spurious liquor in the state. These come to our notice only when the magnitude of such incidents are large.

On the Nature of State Intervention

The question then is on the nature and characteristics of state intervention in the market for liquor following such concerns. What has it achieved, and what has it promoted in the state? The state proposes the Abkari Policy on which it basis its suggestions. As far as this policy goes, the state’s stand has been to effect a reduction in consumption of alcohol across all sections of consumers. However, this policy stand is contradicted by the fact that the KSBC stores selling Indian Made Foreign Liquor (IMFL) has continuously registered increasing profits over time. It is then interesting to compare the state policies with KSBC objectives. KSBC basis its distributive role on four major objectives listed below.

  1. To provide genuine quality liquor to consumers at reasonable prices.
  2. To make available supplies of liquor commensurate to demand.
  3. To evolve a proper system to prevent misuse, distribution of spurious liquor through unauthorized sources and evasion of duties and taxes by middlemen.
  4. Consumer protection and satisfaction.[1]

The four objectives highlight four major points: quality liquor at affordable price; make liquor available as per demand; prevent misuse; protect and satisfy consumers. To analyse the effectiveness of the state policy it will be interesting to see how far have these objectives been achieved. The following sections shall discuss in detail some of these points keeping in mind how they have addressed the concerns of people who have an issue with alcohol consumption in Kerala.

Availability, Quality, and Affordable Prices: In Kerala KSBC and the consumer federation together runs 384 stores for selling Indian Made Foreign Liquor (IMFL). These stores are spread across the state and their number is such that anyone wanting to buy liquor can avail them. KSBC also publishes details of all brands of products that are sold through these stores including details of the price break-up into component taxes. However, the major issue that I see here is a narrow definition of availability.By availability what is meant here is that the consumer has a choice of selecting only products produced in state approved manufacturing units and sold at state determined prices. So the preferences of the consumers is limited to a few products produced by a few manufacturers. Now this choice of the consumer is also in direct relation to the price of some products.For instance, some of the most sold brands through these state outlets are also the cheapest of all(for instance New Jawan XXX special rum, Hatrick XXX Rum and so on). It should also be noted that these products are not much advertised. There are no pictures of these bottles online and the only way in which you could reach them is by buying them.It is hence highly sceptical whether the preference for these products reflect the true preferences of these consumers based on quality and affordability. Rather they appear to be preferences determined solely by the price and more specifically by the restricted availability of alternate items.

Taste and choice of the consumer are crucial in determining demand. Under a monopoly supplier these factors are critically compromised. We see that even in the presence of a monopoly supplier consumption of imported liquor has been increasing in the state over a period of time. This shows that consumer preferences have enlarged beyond the domestically produced brands of liquor. Why might this change have occurred? It should be noted that this shift in preferencehas occurred in spite of huge restrictions in the form of import tariffs to reduce the availability of these brands in the country.[2] In addition the availability of these products are also limited through narrowing their sales through luxury bars and restaurants alone. The price in these places could vary between six to seven times the bottled prices of the liquor. Despite all this, the changing preference could indicate that the criteria of ‘affordability’ has changed possibly due to increasing per capita income of the consumers. It could also mean that people are willing to pay more to access better branded products from the foreign markets. The importance of this category of consumers is also reflected in the fact that the state government has started premium counters to this segment.[3]

Affordable prices are subjective. Even at the current rates at which IMFL is sold through the KSBC counters, many of the consuming class could be discriminated against. This is because the actual costof liquor is almost six to seven times lower than the price after taxes are imposed. This also theoretically creates a situation where it becomes possible for the manufacturing units to illegally sell liquor at their actual cost. For such units any additional amount received over this cost before taxes can be considered as profits if they are sold outside the KSBC outlets. Considering that rent seeking has assumed notoriety as a common sense practice, such theoretical possibilities cannot be waded off.

To Prevent Misuse and Satisfy Consumers: Again one of the statements in the Abkari policy of the state of Kerala for the year 2012-13 was that liquor and tourism are related. The justification for bar licenses emanate from this perceived relation between the two. This clearly divides consumers between the tourists and the domestic consumers. So there is no homogenous consumer in Kerala from the perspective of the state. When an arbitrary and intuitive categorization of the customers are made in this manner, it is likely that the system is bound to be misused. Different policies targeting different sections cannot prevent misuse. Consumers with access to higher end liquor could always sell the same to people without such access. Who then is the satisfied consumer of liquor in Kerala? One with access to the imported fine blended scotch or those who stand in endless queues to access one of those cheapest brands manufactured by state licensed breweries?

There are thus obvious loopholes in the catering policy of the state to consumers of liquor in Kerala. The forthcoming Abkari policy needs to be evaluated in this context. What is expected, continuing with the policy of 2012-13, is further restrictions on the availability and accessibility of liquor. Any decision in this regard would have only one outcome: to reduce the number of higher end customers, who with all privileges to access the four star and above bar hotels pay a few hundreds extra for a sip. More tax on liquor does not reduce its consumption as is seen in the case of Kerala. All that an increase in price would do is to mop up that extra bit of income from the average consumer who will consume irrespective of the price. It is only going to raise the already high levels of consumption expenditure of an average Malayali family. Obviously this kind of addiction is also likely to have severe social challenges associated with it.

With approximately Rs 6000 crore earned through sales by the state, liquor forms the life blood of Kerala. Increasing prices endlessly does not provide incentives to reduce consumption. It is rather ludicrous that the Abkari policy 2012-13 proposes to use a part of this income earned from alcohol to promote de-addiction, healthcare and awareness programmes. We are not sure how much is spent and what has been the benefits. The dilemma of the state to hold on to but yet leave command over liquor is clear from this stand.

While alcohol flows as life blood in the body of the state, it is unlikely that the state could form a conscious policy decision of its own. The first thing that is required is de-addicting the state and providing it with a space to contemplate on policy alternatives. This would also mean providing more transparency to policy making on liquor after consultation with the public. The questions that rise in this context are: Why not ensure quality by opening up the sector and making available IFL in the domestic market? Why not allow the private sector to compete and create a level playing field? The state can’t claim that it will lead to spurious liquor production. Spurious liquor became a norm only under conditions of severe restrictions imposed by the state. With several options remaining open the new Abkari policy will be a major challenge for the state to clearly express and define the future of liquor in Kerala.

Rahul V Kumar 

Associate Research Consultant

Centre for Public Policy Research

 

 



[1] Refer the official website http://www.ksbc.kerala.gov.in/home2.htm

[2]http://www.business-standard.com/article/economy-policy/liquor-intake-likely-to-treble-in-three-years-112070702017_1.html

[3]http://www.newindianexpress.com/states/kerala/Forget-queues-Bevcos-premium-outlet-a-shot-in-the-arm-for-tipplers/2013/08/02/article1713925.ece#.U0JMeFPrbIU

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