Alcohol has long been a subject of taboo in India. Between prohibition and stringent regulation, reforms in this sector have been few and far between. Despite being one of the largest sources of income for State governments, the alcohol sector has rarely been recognised as an economically contributing sector.

It was not until the first wave of Covid that State governments felt the full economic brunt of the closure of retail alcohol shops. The five southern States of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, and Kerala account for nearly 45 per cent to 50 per cent of total alcohol consumption in India saw a significant drop in their excise revenue during the pandemic.

Apart from SGST, the three main sources of revenue for States have been stamp duty, excise duty on alcoholic beverages and value-added tax (VAT) from the sale of alcoholic beverages and petrol goods. From a quick look at the RBI's State Finances Report, it is evident that revenues from stamp duty have been declining, as has SGST. Take for example Karnataka. In 2019-20, SGST collection was ₹421 billion. The estimated collection for 2020-21 was to have been ₹473 billion, but the revised estimates are only ₹378 billion.

Revenue factor

This trend is seen with almost every southern State. For many States such as Karnataka, Telangana, and Pondicherry, State excise is nearly twice the revenue generated through stamp duties. If one were to include VAT revenue from alcohol, then the sector is the highest contributor to State revenues. Over the years, it has been revenue from the alcohol sector that has been consistently increasing, or at the very least remained stable.

However, revised estimates for excise collection for most States are lower than their budgeted collection for 2020-21. This is not surprising considering curfews and reduced operational hours of alcohol outlets. A recent report by the National Restaurant Association of India surmises that the food and hospitality sector has shrunk by more than 50 per cent and that as many as 25 per cent of eating outlets have been permanently closed. Revenues and profitability have also sharply deteriorated. It is, therefore, no surprise that excise revenue generated from the consumption of alcohol at bars, pubs, and fine dining restaurants have also declined.

Ease of doing business reforms in terms of pricing and approvals may still take time, but the pandemic has presented State governments with the opportunity to implement small scale easy reforms for the sector. Specifically with respect to allowing for home delivery of alcohol. A LocalCircles survey conducted in May 2020 showed that 52 per cent of the respondents wanted home delivery of alcohol. It has been over a year since the survey, and yet many States seem to be dragging their feet in this regard.

A few States seized this opportunity and allowed for home delivery of alcohol under the National Disaster Management Act, but these have since been phased out, Karnataka for example. Only Odisha, Maharashtra, and West Bengal have included home delivery as part of their excise policy and it has clearly made a difference with respect to their excise revenues. Allowing for home delivery of alcohol certainly seems to be the way to proceed. At a time when home delivery of groceries and food has increased manifold during the pandemic, the question is why the same cannot be allowed for alcohol.

Three reforms

There are three specific reforms with regard to home delivery that can be implemented with ease. First, States must allow retail alcohol shops to home deliver orders placed with them directly. Second, with the increase in local aggregator delivery service providers, States must allow for customers to use these services to pick up their orders from local retail alcohol shops and have them delivered to their doorstep, where the consumer is willing to pay the price of delivery to the third party delivery aggregator. Third, even as many restaurants and pubs have had to remain closed or operate at a lower capacity and fewer hours, those with alcohol licenses must also be allowed to deliver alcohol or cocktails as part of food orders.

The advantages to allowing for home delivery of alcohol are obvious. To begin with, at a time of escalating cases, crowding in the retail shops will be reduced. States will also have a way of collecting excise revenue without the burden of flouting Covid safety norms. For the hospitality sector, it will help increase their revenue. Basic checks and measures, such as, checking of identity at the time of delivery, can ensure seamless home delivery of alcohol. It is time for States to break this taboo and think beyond mere prohibition. The southern States that have always been heralded as the flag bearers of progressive reforms, should be leading this initiative from the front.

The writer is Chief Executive Officer (CEO) at Pahle India Foundation (PIF). The views expressed are personal