Home / Opinion / Online-views /  Opinion | The addictive nature of bad policies

Bad policies are contagious and addictive, whereas good policies require justification everywhere and every time. Two years after the Nitish Kumar government imposed prohibition in Bihar, Madhya Pradesh, Rajasthan and Chhattisgarh might join the prohibition club, according to early election indicators. Political parties are increasingly eyeing prohibition as a trusted electoral strategy to win over women voters and those who view drinking as a moral, health and crime issue. The big political parties that are in contention in these states are planning to include prohibition in their election manifestos ahead of the state elections later in 2018.

What is truly surprising is that the idea of prohibition could still gain traction in 2018, despite numerous examples from history that could forewarn the disastrous consequences. Prohibition has been tried and failed in many regions around the world. The US had prohibition from 1920 to 1933, with such negative consequences that it has never been tried again in the country. Canada, Mexico, Finland, Norway and Russia tried and repealed prohibition more than a hundred years ago.

Closer home, one could look at the examples of Gujarat, Nagaland and Manipur, where prohibition is still in place, but largely remains a joke. In Ahmedabad, one can get liquor home-delivered faster than pizza and in Kohima and Dimapur liquor is easily available in grocery, confectionery and garment shops, restaurants, and even in paan stalls. Other states, such as Andhra Pradesh, Mizoram, and Maharastra have tried, failed, and repealed prohibition.

Unfortunately, prohibition also has massive negative unintended consequences apart from being ineffective. 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.

To test these economic predictions, look at the latest prohibition experiment in Bihar. The Bihar Excise Act of 2016 was introduced to be the most stringent of the prohibition laws ever tried in the country. These laws hurt the poor and the marginalized disproportionately, going by arrest records. In July 2018, Nitish Kumar was forced to tone down the severity of the law.

In Ahmedabad, one can get liquor home-delivered faster than pizza-

The demand for a product does not disappear due to government legislation, instead, it just goes underground, where the government loses all control over its production standards, distribution mechanism and consumption. This results in production and consumption of hooch with disastrous consequences. Just a few days after the ban in Bihar, 16 people died because of the consumption of illicit alcohol and another four died the following year.

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 cognizable crimes rose 11% in the 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 almostly 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.

Alcoholism is an old problem and can cause some damage to the social fabric and public health. Alcohol is an addictive substance, but, prohibition is just not the solution. It is ineffective and creates unintended consequences that are more damaging than the original problem. Unfortunately for the government, this kind of paternalistic policy making and intervening in markets is as addictive as the substance they are trying to ban.

Anupam Manur is a research fellow at the Takshashila Institution.

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