Liquor industry

Why let happy hours turn Deathours?

Jurassic age policies are breeding a dangerously illegal liquor industry

Sample this: April 05, 2009 – 14 people died in Assam after drinking tainted liquor; March 19, 2009 – 4 people died after consuming local liquor in Delhi; March 21, 2009 – 7 died due to consumption of illicit liquor; Jan 31, 2009 – illicit liquor kills 16 in Maharashtra; January 05, 2009 – 19 slum dwellers died in Kolkata after drinking poisonous alcohol. In separate incidents on May 18, 2008, illicit liquor claimed 115 lives in Karnataka, 83 in Bangaluru city and 32 in Kolar.

While these are nothing more than just side strip news in the newspapers or at best a day’s coverage in the television media, the stark reality is the widespread prevalence of illicit liquor in rural India. In a country where the quantum of consumption of alcohol and the incidence of violence in society, somehow seems to positively correlate, all kinds of prohibitive actions to restrict the consumption of alcohol have often proved to be counterproductive. India’s liquor industry is one of those unfortunate industries where regulation and controls are still levied on the output and selling price. The state Excise department largely controls the final selling price. Ironically, all that India has ended up doing is to jack up the prices of quality liquor without stringent enforcement measures in place to prevent the growth of illicit liquor producers. Since the liquor sector is a highly sensitive market, even a small rise in price alters not just the consumption decision but also the consumption pattern, and for the worse. With rise in price, consumers, instead of consuming less liquor, switch to sub-standard alternatives; thus keeping their consumption rate intact but not the quality. It is this basic economics that governs the clandestine liquor industry. Let’s face one reality. People in any case would drink no matter how much the government would try against it. Against the populist notion, prohibition and ban on liquor will never serve the purpose of a society that intends to insure itself from the ill effects of alcohol. Gujarat, along with a few other south Indian states, is experiencing a huge influx of black marketed alcohol. It actually encourages tragic deaths as people turn to illicit drinks produced clandestinely without maintaining proper standards. Moreover, it leads to more crime. In 1920, before the US Government enforced prohibition, money earned from illegal liquor sales was also being directed to other illegal activities. The same is said to be happening in India. And since it’s impossible to control the consumption, what best can be done is to ensure the quality of what is essentially consumed by people in the lower rungs of the social hierarchy. Ironically, in countries like France or Russia, their local drinks, i.e. wine and vodka respectively, are available at a price lower than or comparable to the price of a litre of packaged drinking water. India need not do something like that, but allowing small time brewers to get organised and allowing big players to get into the production of  local drinks and thus improving  their quality would certainly help in reducing the casualties from illicit liquor. India has for long ignored the potential market for its indigenously produced liquor. Russia is famous for its Vodka, France for its Wine and Scotland for Scotch. Then why can’t Feni of Goa, Taadi of Maharashtra, Yu of Manipur, Tongba of Sikkim and many local liquor of Rajasthan be India’s answer to these world famous drinks? For, these drinks are not just famous among locals but are also hot favourites among the foreign tourists. This will not only bridge the existing demand-supply gap but will also help in reaping huge revenues while ensuring quality.

In spite of the insatiable demand for liquor, the irony is that the entry barriers are too high for new and small players from coming into this Rs.280 billion industry. Besides a few names like United Breweries (UB) Group, Shaw Wallace, Mohan Meakins, Radico Khaitan and Associated Breweries & Distilleries, many names in the organised market are not even worth mentioning. The main reason for the industry not luring more investors is precisely the exorbitant duties. This clearly shows that there is enough latent demand for growth in genuine liquor consumption once the duties are reduced and brought at par with international levels. Currently, in the beer industry, import duty is a whopping 100% (excise duty is equal to the manufacturing cost) with additional surcharge of 10% and other state duties of 4%. Each bottle of beer also has to bear 45% sales tax and 5% cess with some kind of additional excise duties. On an average, the duty is around 500% in some states, after taking into account all the central and state taxes. Excise duty for other Indian Made Foreign Liquor aka IMFL can be as high as Rs.500 per litre. Maharashtra imposes the highest duty of 200% of the declared cost of a bottle. On wine too, it can be as high as 200% of the base price, which, considering the price of wine, is quite exorbitant. Due to this, the Indian wine industry is yet to flourish. Even the European Commission has objected to the sheer lack of compatibility of the current tax regime with the WTO framework, which affects top guns in the industry as well. As they are only allowed to produce grain-based liquor, with a few exceptions, their market gets confined to a very niche segment. With India gradually getting into the league of  top alcohol-consuming nations, a weird kind of liquor apartheid continues to linger. With increase in duty-free shops and state-approved outlets, consumption level is experiencing new heights in the upper class. While at the lower strata of the society the saga of innumerable deaths, kickbacks and deliberate allowing of the illicit liquor business to thrive continues.

The All India Distillers Association states that the demand for country liquor was 863 million litres in 2007-08, as against 454 million litres for Indian Made Foreign Liquor. Therefore the next time you open the newspaper and witness news of many such deaths, rest assured of one thing – there is a direct correlation between such deaths and the collection of excise revenues by the governments, both by the states and by the centre. Measures like reduction in excise duties and sales tax on liquor, as well as allowing organised industry to venture in the brewing of indigenous liquor would  surely have saved a few more lives but at the cost of revenue to exchequer, which, for obvious reasons, is perhaps more dear to the government than a few wretched lives. So why not let the draconian, yet lucrative laws continue?