Sabko maloom hai main sharaabi nahin

Phir bhi koi pilaye to main kya karoon

(Everyone knows that I am not an alcoholic

But what can I do if someone pours me a drink?)

Pankaj Udhas’s ghazal couplet on the classic excuse of a drunkard echoes the fluidity of most State governments over alcohol taxation. “We don’t need the tax money from alcohol, you know,” seems to be the argument. “But if people want to get drunk what else can we do but tax the drink?”

The truth: governments are increasingly relying on alcohol revenue to pay their bills. Roughly one-fifth of most State government budgets are funded by booze. And, that share is going up by the year.

Big contributor With the exception of Gujarat, Nagaland, Mizoram and Manipur, where liquor is officially prohibited, alcohol revenue takes the second, third or fourth place in terms of contributions to a State’s coffers.

Take, Tamil Nadu, for instance; in the last financial year, the Tamil Nadu State Marketing Corporation (Tasmac), the government-owned IMFL monopoly, alone paid a whopping Rs 21,800 crore into the government kitty. In Kerala, where 22 per cent of the total government revenue came from the bottle, the total excise and commercial tax revenue from alcohol (IMFL and toddy) was close to Rs 8,000 crore.

However, alcohol taxation statistics are woefully inadequate and complex as revenue from liquor goes to many accounts in many departments, such as Excise and Commercial Taxes. Sales tax, Excise duty, import fee and education cess are some of the various forms of alcohol revenue.

Governments often project excise revenue alone, but sales tax is much more than Excise. In States such as Tamil Nadu, Kerala and Delhi, where the wholesale and retail liquor business is under government control, alcohol revenue is relatively easy to reckon. In Andhra Pradesh, Orissa, Bihar, Chhattisgarh, Rajasthan, Uttarakhand, Uttar Pradesh, Karnataka and Bihar, governments run the wholesale business, leaving retail to private players. Maharashtra’s liquor business is in private hands.

“Liquor provides 20 per cent of the share of the government’s own revenue in most States,” says Jose Sebastian, associate professor at Gulati Institute of Finance and Taxation, Thiruvananthapuram. “In Kerala, it is now 22-23 per cent, rising gradually from 15 per cent over the past quarter century.”

In Karnataka, where the government is in the wholesale business, Excise revenue is currently 20 per cent of State revenue. West Bengal’s Excise revenue in the last financial year was Rs 2,600 crore, up from the previous year’s Rs 2,100 crore. Viewed against the State’s total revenue collection of Rs 32,000 crore in 2012-13, the Excise collection was only around 7 per cent. However, the Excise figures alone do not show the whole picture as industry estimates that the sales tax on potable alcohol last year was Rs 1,400 crore.

“State governments’ dependence on alcohol revenue is very unhealthy and disproportionate,” says K.K. George, chairman of the Kochi-based Centre for Socio-Economic and Environmental Studies. “This imbalance needs to be corrected.”

The way governments make money out of the alcohol business is baffling. Of Tasmac’s Rs 24,500-crore sales in the last financial year, over Rs 21,800 crore went to the exchequer. In the case of the Kerala State Beverages Corporation or Bevco, Rs 7,241 crore out of its Rs 8,818 crore turnover was claimed by the government. Bevco gave the government more than Rs 600 for every Rs 100 it spent on alcohol.

Here’s how it works: the landed cost of a 24-bottle case of Hercules SP XXX rum (pint) for Bevco is Rs 775 or 32.30 a bottle. The retail price for a pint is Rs 230. The huge differential goes to the government by way of taxes and charges.

Sebastian feels that governments’ reliance on alcohol revenue is counter-productive. “It makes them lethargic about finding other revenue sources,” he says. “Remember: a big chunk of the revenue comes from the working class.”

Rationing Rationale Equity is a big issue in alcohol taxation, says Sebastian. “Asking a daily-wage worker to pay 600 per cent tax on his drink is cruel. The government claim that by charging more for liquor, the poor will be dissuaded from drinking is absurd. “No matter what the price is, the habitual drinker will buy his drink. Only, the quantity of food on his children’s table will shrink.”

Every hike in the price of alcohol leads to a reduction in the household income of the poor, a cut in the nutritional level of children and denial of healthcare to the sick, contends Sebastian. His solution: supply subsidised alcohol through the public distribution system to drinkers living below the poverty line. This would also reduce consumption of alcohol.

Drinking country More than a fifth of alcohol produced in the world is consumed by Indians. The Lancet magazine points out that two-thirds of alcohol consumed in India is unrecorded, mainly illicit. Tribal, backward and working-class communities in most parts of the country consume arrack and palm toddy.

However, since India’s economic liberalisation, the market for IMFL and imported liquors is growing fast. A study by the Associated Chambers of Commerce and Industry in India two years ago found that the liquor industry was expanding 30 per cent year-on-year. In 2015, liquor consumption is pegged to touch about 20 billion litres. The total value of spirits, wine and beer consumed in India is projected to be in the neighbourhood of Rs 1.5 lakh crore in 2015.

India is the largest whisky market in the world. And there is increasing demand for imported whisky and wine. Economic affluence, urbanisation, changing lifestyles and social mores are all persuading young people to take to drinking.

“But, Indians’ drinking habits and patterns are problematic,” says Johnson J. Edayaranmula, director of Alcohol and Drug Information Centre India. “At least a third of the drinkers fall in the ‘hazardous drinkers’ category.” But, prohibition will not work; only a strong and sustained campaign will help check the spread of alcoholism, he contends.

For State governments, the fast-growing liquor market means an increase in the inflow of funds. Or quite simply, an increase in dependence on alcohol revenue. Never mind that a National Institute of Mental Health and Neurological Sciences study in Karnataka a few years ago found that for every rupee the government got off the bottle, it lost more than Rs 2 in terms of healthcare expenses and lost productivity.


(With inputs from Rahul Wadke and R. Satyanarayan Iyer in Mumbai, Bindu D. Menon in Delhi, R. Ravikumar in Chennai and Jayanta Mallick in Kolkata)