How India binges on its booze economy7 min read . Updated: 14 May 2020, 09:48 AM IST
- An average Indian drinks 5.7 litres of alcohol a year and states earn over ₹2 trillion
- Covid may make the attraction stronger
NEW DELHI : It is the third-biggest reason for road accidents in India, after over-speeding and lane indiscipline. One-third of males and one-fourth of females in India who have made it a part of their lives say, in surveys, that it causes problems to their physical health, finances and household responsibilities. But alcohol —the events of the past week have shown—is an intricate and essential part of the Indian economy.
A strange dichotomy runs through the alcohol economy. It won’t be owned, and it won’t be disowned. State governments, which often punctuate alcohol regulation with moral overtones, have no problem putting alcohol at the front of the queue in terms of priority in a moment of crisis. The reasons are obvious: India’s states, put together, earned about ₹2.25 trillion from taxes on alcohol in the most recent fiscal year.
But what is true for the state is also true for Indian men (who, as data shows below, are far bigger consumers than women). While they self-report its harms and downsides in surveys, they also have no problem jostling in queues outside alcohol outlets in the middle of a pandemic. India, as a result, has never managed to have a serious reckoning either on safe drinking, or on whether the state should control the alcohol economy so closely.
Covid-19 may change many aspects of work, life and the economy, but India’s relationship with alcohol will likely remain intact. If anything, the linkages might get stronger.
For nearly all state governments, liquor revenues are a cash cow. There are four states that collected above ₹20,000 crore in taxes from the sale of liquor in 2018-19: Tamil Nadu, Uttar Pradesh, Maharashtra and Telangana. This should be seen in the context of their own tax revenues (as opposed to what they received from the central government). As many as 21 states, including several large states, derived more than 15% of their own tax revenues from the sale of liquor.
For north-eastern states, which lead in terms of the share of male population drinking alcohol, the contribution of liquor taxes to the exchequer is even higher. For example, in 2018-19, about 58% of Mizoram’s own tax revenues came from liquor taxes. That figure for Meghalaya was about 47% (Chart 1).
Even a 15% share of own tax revenues is a big deal for states. Around half the combined revenues of states come from taxes collected by the Centre that it shares with them. With India shifting to a system of ‘one nation, one tax’ in July 2017—the goods and services tax (GST)—the tax levers available to states have significantly reduced.
They still have a few items they can rely on in a crunch: like liquor, petroleum products, registration of land and vehicles. But in the current scenario, where nearly every revenue stream is severely strained, alcohol sales can be a saviour. And they were. On day two of reopening, Karnataka reported single-day liquor sales of ₹197 crore, its largest ever. Similar record sales were seen in Uttar Pradesh and Delhi.
When the pandemic-induced lockdown was first announced, the Centre excluded liquor shops in the category of establishments that would stay open. It was not deemed to be “essential". States backed the Centre’s stance. But as the days under the lockdown accumulated, and as the economy and tax collections slumped (with more money from the Centre not forthcoming), states started clamouring with the Centre to allow liquor vends to reopen.
On 4 May, after 40-45 days of closure, liquor vends reopened. The pent-up demand manifested in the long—and almost wholly, male—queues that emerged at vends, with complete abandonment of physical distancing.
With queues not relenting, and posing a health hazard, Delhi imposed a 70% ‘special corona fee’ with immediate effect. But studies have shown that the demand for liquor is inelastic. A 2017 study by Santosh Kumar on the price elasticity of alcohol demand in India found “a modest negative association between price and demand, implying that drinkers are not very responsive to price change."
Even as queues and disorder increased, states didn’t backtrack on this discretionary good. Instead, they pressed police persons to manage queues. Delhi issued e-tokens. Maharashtra allowed home delivery of alcohol. Implicitly or explicitly, what revenues from liquor taxes could do to states, especially at a time like this, formed a part of this decision-making.
Indian men were happy too. According to the National Family Health Survey (NFHS) 2015-16, in India, 29.2% of men in the age bracket of 15-49 years drank alcohol. In other words, nearly one in three men in that age bracket is a consumer. The figure for women is significantly lower, at 1.2%, and there are only two states where this number exceeds 10% (Sikkim and Arunachal Pradesh).
The overall share of drinkers, in both genders, is lower than a decade ago. The 2005-06 NFHS reported that 32% of men and 2% of women in this age bracket drank alcohol. During this decade, 17 of 27 states and Union territories (UTs) show a slight decline in the share of the men consuming alcohol, with the largest declines seen in Punjab, Delhi and Kerala.
Among men, the north-eastern states have the highest propensity to alcohol. At the other end of the spectrum was Jammu & Kashmir and Gujarat, the latter choosing prohibition in 1960 (Chart 2).
Data also suggests that though the share of Indians drinking is on the decline, the consumption per individual has increased. According to the World Health Organization (WHO), average alcohol consumption in India was 5.7 litres per person above the age of 15 per year in 2016, up from 4.3 litres in 2010. On per capita consumption, India is ranked 101 (with Moldova leading with 15.2 litres. In the immediate neighbourhood, the figure for Pakistan is 0.3 litres and China is 7.2 litres).
India has had a conflicting history with prohibition. States have been torn between the need for revenues and the broader problems its abuse created. As a result, they have been imposing dry days, and some form of control. Some states have gone the full hog in imposing prohibition: Gujarat (since 1960), Nagaland (since 1989), Bihar (since 2016), Mizoram (since 2019), and in most parts of Lakshadweep.
In most parts, states control liquor distribution. Take, for example, Tasmac (Tamil Nadu State Marketing Corporation), set up in 1983 by then-chief minister M.G. Ramachandran as the monopoly liquor wholesaler for better control over distribution. For retail, it auctioned licences to the private sector. This, in turn, led to problems, including cartelization and customer complaints—and lower revenues to the state.
Twenty years later, the J. Jayalalithaa government claimed monopoly over retailing too. It has served the state well. Its revenues jumped from ₹2,828 crore in 2002-03 to ₹31,157 crore in 2018-19. It’s also a reason why Tamil Nadu has been pushing the Centre to reopen liquor shops.
Unlike the purchase of a car or a computer, lost liquor sale is lost forever. Thus, for Tasmac, which was selling 160,000 cases of Indian-made foreign liquor and 90,000 cases of beer every day, the sales might not necessarily return, reducing the ability of Tamil Nadu to fund even ongoing schemes.
But liquor also has a tipping point. Of about 467,000 road accidents in India in 2018, drunken driving was responsible for 12,018 accidents and 4,188 deaths. According to the WHO, globally, the chances of death in a road accident increase 17 times when a driver is alcohol-induced, compared to an unimpaired driver. It’s dangerous even when one is not driving. In the UK, 48% pedestrians killed in road accidents had consumed alcohol.
Not all costs are as evident or as graphic as a road accident. A survey conducted by the National Institute of Mental Health and Neurosciences (NIMHANS), Bengaluru, highlighted problems articulated by one-third of male drinkers and one-fourth of female users (Chart 3). This includes sleep problems (three times compared to non-users), presumptive heart problems and injuries (twice more). It’s not just self-harm. People in close contact with alcohol users reported a significantly greater proportion of adverse events, including physical and emotional violence.
Addiction also causes economic loss. In 2000, Vivek Benegal and his team assessed 113 patients admitted to a special de-addiction service for alcohol dependence. They found that the average individual earned a mean of ₹1,661 but spent ₹1,938 per month on alcohol, incurring high debt. They also found that 95% did not work for about 14 days in a month. They concluded that it led to a loss of ₹13,823 per person per year in terms of foregone productivity.
A more recent study, Health Impact and Economic Burden of Alcohol Consumption in India, led by Gaurav Jyani, concluded that alcohol-attributable deaths would lead to a loss of 258 million life-years between 2011 and 2050.
The study placed the economic burden on the health system at $48.11 billion, and societal burden (including health costs, productivity loss, and so on) at $1,867 billion.
“This amounts to an average loss of 1.45% of the gross domestic product (GDP) per year to the Indian economy," the study said. For now, revenues are all that states can see in liquor.
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