National

Liquor price spiral impact runs deep in Kerala, poorest consumers hit hard

Vinson Kurian Thiruvananthapuram | Updated on May 18, 2020 Published on May 18, 2020

People stand in a queue outside a toddy shop to buy liquor, during the ongoing Covid-19 lockdown, in Kochi.   -  PTI

Shock varies across communities

By raising sales tax on liquor up to 35 per cent, Kerala may just have plotted a reprisal of the arrack ban in the State in 1996, that had forced poor and marginalised consumers to go instead for costlier India-made foreign liquor (IMFL). The latest hike may raise an additional ₹2,000 crore in revenue for the resource-strapped State government, but at the cost of family budgets of the vulnerable.

 

The current increase in tax rate is only going to exacerbate their penury, already severely hit by the Covid-19 pandemic. Ironically, the State government is citing the very pandemic and its impact on its economy as the proximate reason for the move. After all, governments ruling the State till date have looked at liquor revenues as the elixir that keeps the economy afloat.

Addicted to liquor revenue

The State is as fond of liquor revenues just as its tippler community is of the spirit. Post-2018 floods, the State raised the excise duty on liquor for 100 days with a view to tiding over a fiscal crisis. Two years down the line, Covid-19 has prompted it again to reach out for this low-hanging fruit. The latest hike will take in liquor sales tax up to 247 per cent, among the highest in the country, notes Jose Sebastian, public finance expert and former faculty of the Gulati Institute of Finance and Taxation.

 

The poor and marginalised consumers take the biggest hit here, Sebastian says. “There is a compelling body of evidence to show that the impact from the liquor price hike varies from community to community, as is applicable for the quantity consumed,” he told BusinessLine. Liquor sales in the Malabar district, where 71.87 per cent of the State’s Muslims population is located, is significantly lower than the Travancore-Cochin districts, he said, quoting statistics.

Consumption patterns

The poor people spend a larger proportion of their daily income on liquor than the middle-class and the rich. The latter do spend, but as a proportion of their monthly income, it is a measly sum, notes Sebastian. The proportion of poor people among Christians (18.4 per cent) is substantially lower than that of the Hindus. The proportion of the poor and marginalised among Hindus (54.72 per cent) is substantially higher. “Islam discourages liquor, which leaves the burden disproportionately heavy on the poor among the Hindu community.”

 

A comparison of the purchase price and retail price of the public sector monopoly wholesaler and retailer, the Kerala State Beverages Corporation (KSBC), is mind-boggling Table 1). The difference between the purchase price and retail price is almost 10 times in the case of one brand. In the case of some others, it is higher than 11 times. With the 35 per cent increase in sales tax, the prices may have gone up further. To give examples, the price of Old Monk XXX Premium Rum Select is now ₹850 and No 1 Honey Bee Brandy is ₹620.

Failed objective

The avowed objective of levying prohibitive rate of tax on liquor is discouraging consumption. But this remains a pipe-dream to date. “What happens instead is that the family budget will be pruned to accommodate liquor. One need not look beyond trends in liquor consumption to get a handle on this. In terms of the quantity consumed, Kerala is fourth after Andhra Pradesh, Bihar and Punjab (Table 2). But in terms of value, Kerala is second to Andhra Pradesh. This is because, compared to other States, Keralites prefer the costlier IMFL,” says Sebastian.

 

Published on May 18, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.