13 March 2019
A True cost of Alcohol prohibition
Source: By Shagun Khurana: The Financial Express
According to a 2018 report by the World Health Organisation (WHO), the per capita alcohol consumption in India has increased from 2.4 litres in 2005, to 4.3 litres in 2010, and to 5.7 litres in 2016, mainly driven by changes in demographics and spending patterns. The demand for alcoholic beverages has been rising and it has become an important parameter for tourists as well. The tourist-friendly liquor ban policy prevalent in Gujarat clearly shows that the government takes cognisance of the relationship between the availability of alcoholic beverages and tourist influx.
The state of Gujarat continues to practice complete prohibition of production, sale and consumption of alcoholic beverages since the 1950s. In early 2000s, with the changing business environment in the state and increased acceptance of alcohol around the country, prohibition policies started proving detrimental to the tourism industry. The state tourism department had to intervene to persuade the government to relax prohibition norms for tourists. In the contemporary setting, the tourism sector has multiple interlinkages with other industries such as food services, hospitality, retail and real estate. Therefore, to prevent spillovers on other sectors, over the years Gujarat has evolved its prohibition policy to allow consumption of alcohol under certain circumstances, with the provision of health permits, tourist permits and group permits for holding business meetings.
Gujarat introduced tourist permits on arrival at airports and hotels and individual and group permits through its online portal in 2014. According to the Bombay Prohibition (Gujarat Amendment) Act, 1963, a hotel that has “ordinarily a sufficient number of boarders eligible to hold permits” can obtain a hotel licence for selling alcoholic beverages to tourists on premises. In 2012, there were 29 such hotels, and by 2016, the state government granted licences to 23 more.
The state also has authorised retail shops that are allowed to sell liquor to permit holders directly; in 2014-15, the total number of retail outlets were 26, which has more than doubled to 58 in 2018-19. The effect of this favourable approach towards the tourism sector is reflected in the high inflow of tourists, both domestic and international, despite it being a prohibition state. Gujarat serves as a classic example, where the government has been successful in bringing forth policies to contain the adverse effect of liquor prohibition on the allied sectors.
Taking cues from the Gujarat prohibition story, the Kerala government also introduced a near-complete ban on alcohol. In 2014, the per capita consumption of alcohol in Kerala was 8.3 litres per year, well above the national per capita average of 5.7 litres per year, which compelled the state government to take such an extreme measure. Nevertheless, the move led to a decline in the growth rate of tourism in Kerala, from 8.1% in 2013 to 7.6% in 2014 and 5.9% in 2015.
The total estimated loss of revenue from tourism was to the tune of `700 billion. The total revenue generated from MICE (meetings, incentives, conferences and exhibitions) tourism alone, which grew at 9.1% in 2013, and 4.8% in 2014, actually plummeted by 0.6% in 2015. Due to such a substantial impact on the economy and employment, the Kerala government had to repeal its decision of alcohol ban in June 2017.
Prohibition has its pros and cons and its implementation has proved to be a challenging task, to the point of becoming impractical. Despite heavy monitoring and regulation, the illegal manufacture, sale and consumption of liquor continues to cripple the prohibition efforts of the Gujarat government. Data from various sources indicate that the number of deaths caused by the consumption of illicit alcohol is one of the highest in Gujarat. Between 2012 and 2016, spurious liquor claimed 177 lives in Gujarat.
A more recent example is from Bihar, where bootlegging, illegal trade and consumption of alcohol are rampant since the government brought in prohibition in 2016. The unrecorded consumption of alcohol in India is around 50%, as shown by another WHO report in 2014. Prohibition tends to push the regulated market underground as well; the result is a parallel economy for alcohol in Bihar. There was a steep increase in substance abuse and bootlegging activities in Kerala as well during the year following the liquor ban.
The immediate effect of prohibition is a dent on states’ revenues. Post the introduction of GST, revenue from excise has become one of the major taxes collected by states on their own. When the Bihar government announced the liquor ban in September 2016, it cost the state heavily, as the receipts from state excise fell sharply from `3,141 crore for 2015-16 to `29 crore for 2016-17. Because of fiscal constraints, the government has been forced to withdraw all capital incentives including subsidy for industries investing in Bihar, as per its new industrial policy. Moreover, there has been an adverse impact on economic activity as well. MICE tourism in the state has taken a huge blow; with most big events, conferences, product launches, etc, been shifted to other states, occupancy rates in hotels have come down to 40-45%.
State governments need to reflect on their perspective about prohibition of alcohol, especially because it is a significant loss to the interlinked industries, and is a complete wasteful exercise if the ban is repealed later (like in Kerala). One policy does not fit all. In 2016-17, the per capita income of Bihar was `28,485 at 2011-12 prices, while Gujarat’s was 4.5 times. A state like Bihar cannot afford a loss of revenue and a blow to the economic activity of that magnitude. In turn, enforcement of prohibition laws poses a big challenge for state governments and is a financial burden. The question remains: Is it worth it to “ban” alcohol, rather than focusing on encouraging responsible practices in production and consumption?