Political moves to make prohibition a poll issue may have economic ramifications for state exchequers
More state governments than ever before are suddenly keen to turn their states dry. Says Kalyan Ganguly, CEO, breweries division, UB: "I don’t think there is anybody in the country today who believes prohibition makes sense. Also, I doubt that there is any politician who underestimates the potency of this issue. Prohibition as an issue is an excellent filler. It can be used in place of more concrete issues."
The economic implications are frightening. Taxes on liquor contributed a revenue of Rs 18,000 crore in 1994-95 to state exchequers, around a third of the Rs 54,349 they earned through direct and indirect taxes. Already, barely a year after imposing total prohibition in the state, the Andhra Pradesh Government faces a grave financial crisis stemming from the Rs 1,300-crore revenue lost on account of prohibition.
And the effects of prohibition are much instance, the Kerala Government’s recent clampdown on liquor can turn out to be ruinous for the state’s thriving tourist industry. Though the ban in Kerala from April 1 is only on arrack, the police and the excise department have been instructed to do all they can to discourage drinking in the state. The excise on Indian made foreign liquor (IMFL) has been spiked up to 200 per cent, leading to a 750 ml bottle of regular whisky costing Rs 375. The punishment for anyone breaking these laws has been made extremely severe: a fine of Rs 25,000 or six months imprisonment or both. The arrack ban means a loss of Rs 250-300 crore for the exchequer, but the Government appears willing to write the amount off. In fact, total prohibition is what Chief Minister A.K. Antony is promising, should the ruling United Democratic Front be voted back to power in the upcoming assembly elections.
In Haryana, the government first closed liquor vends in over 200 villages. On April 1, prohibition was clamped on the entire rural area and some towns in the state. For instance, 48 of the 53 liquor vends in Kurukshetra district have been closed down. There will be no liquor vend in the 75-km stretch from Kaithal to Ambala and for 40 km between Nilokheri and Shahabad Markanda on the Grand Trunk Road.
Though the Maharashtra and Karnataka legislative assemblies are not going to the polls, righteous murmurs are already audible in these two states. Apparently, the Lok Sabha elections are reason enough to make noises against liquor consumption. In Maharashtra, as in Delhi, surrogate advertising for alcohol—that is, advertising, say, mineral water or crystal sets carrying a liquor brand name—has already been banned. And on February 12, BJP leader Prakash Jawadekar, who is vice-chairman of the Maharashtra State Planning Commission, told party workers that the Shiv Sena-BJP alliance was giving serious thought to a total ban on liquor in the state.
In the last couple of months, Karnataka Chief Minister H.D. Deve Gowda has repeatedly raised the spectre of prohibition. State Excise Minister Thippeswamy has held discussions with his counterpart in Andhra Pradesh to discuss the feasibility of introducing prohibition in phases. There is a serious move to start prohibiting the sale of arrack in a phased manner from the next excise year. This will mean a loss of Rs 500 crore in excise revenue.
As has been proved repeatedly in the past, prohibition does not stop people from drinking. "Prohibition has never worked anywhere," says Vijay Mallya, chairman, UB group. "It is a well-known fact that even in Islamic states, where there is a total ban on alcohol, liquor is available and is widely consumed at home. Prohibition always creates more problems than it solves." IMFL is still available in Andhra Pradesh, even home-delivered, though at thrice the price before prohibition was introduced. The twin cities of Hyderabad and Secunderabad have a large military cantonment area whose supply of liquor is unaffected. Prohibition has just helped unscrupulous militarymen make a fast buck.
Says Rakesh Mohan, executive director, Mohan Meakin Ltd: "When one state in five wet states goes dry, what happens is that a substantial part of business, and with it revenue, shifts to adjoining states." Liquor from five states bordering Andhra Pradesh—Maharashtra, Karnataka, Madhya Pradesh, Orissa and Tamil Nadu—continues to flow into it. An ordinary IMFL brand costs anything between Rs 300 and Rs 500, while the premium brands sell for between Rs 1,200 and Rs 1,500. Liquor bottles bearing the ‘for sale’ marking or the excise stamp of neighbouring Karnataka and Maharashtra states are in circulation. While the trickle comes in through suitcases and jute bags in trains and buses, the flow is through trucks. The deal between smugglers and excise officials is straight: for every four to five truckloads, the proceeds of one truck go to the officials. Says Deepak Roy, managing director, International Distillers (India) Ltd: "In Gujarat liquor is freely available with the neighbourhood paanwala . It is probably the state with the highest consumption rate."
"To compensate for the loss in revenue, state governments try to quietly raise rates on other taxes, leading to social strife," says Mohan. According to him, the Andhra Government has been liquidating government property to fight the funds crunch. Add to that the very real possibility that the poorer sections may fall back on highly dangerous illicit hooch. Says Mohan: "Unfortunately, the Andhra Pradesh government, while using a political plank to please one section of society, housewives, is making the rest of the populace pay the price, often heavy, in the form of death and blindness due to consumption of hooch. Prohibition not only exposes the lower-income consumers to danger, but it also forces nondrinkers to pay more taxes to make up for the revenue loss."
India should learn from the US experience, says Devin Narang, managing director, Narang Industries Ltd, and vice-president, All India Distillers’ Association (AIDA). Quoting a study, Narang says that prohibition in the US distorted the role of alcohol in American life, causing people to drink more rather than less; it promoted disrespect for the law; it generated a wave of organised crime; and the profits available to criminals from illegal alcohol corrupted almost every level of government. Adds Ganguly of UB: "Alcohol is a visible cause of misery in the lower income segment, but the actual culprit is the poor economic scenario. But you can’t legislate morality, which is why prohibition is never successful; it is unattainable and unsustainable."
How badly have the recent state government directives hit industry? Andhra Pradesh accounted for 15 per cent of all-India sales, so prohibition has definitely had an effect on liquor company fortunes. IMFL retail outlets in Kerala claim business is down by 50 per cent. In the absence of these political moves, the Indian liquor industry’s growth would have been between 15 and 17 per cent, against the present 12 per cent, feels Mohan.
However, Mallya does not think that the blanket ban on advertising in Maharashtra and Delhi has affected consumption. "The use of mass media and the consequent use of surrogate products is confined to brand building needs," he says. "There has been no negative impact on sales as resources previously allocated to brand-building are now used for consumer and trade promotions at the point of sale." Smaller liquor marketers, though, feel that the ban helps the larger companies and transnational corporations, which, with their deeper pockets, can easily hawk their products on satellite channels which follow the Hong Kong advertising code: that is, no restrictions on advertising liquor.
In the meantime, the IMFL industry is rallying round to set up the Confederation of Indian Alcohol Beverage Companies (CIABC). The new body, along with transnational liquor marketers, will try to evolve international norms for the liquor industry and interact as a pressure group with the various state governments. The CIABC is expected to be constituted soon, says Mohan. He suggests that in alcohol advertising, international norms and formats could be emulated here. For instance, in France, advertisements can show a bottle of liquor but no people. Norms like this, feels Mohan, allow the brand and the product to be advertised without propagating consumption of alcohol as a lifestyle.
But will such a group be able to grapple with the might and muscle of the state and the laws of the land? After all, the Directive Principles of our Constitution mention the imposition of prohibition on consumption of intoxicating drinks as one of the objectives of the state policy. In October 1994, the Supreme Court in a landmark judgement held that the right to trade in liquor is not a fundamental right. The five-judge bench ruled: "As the trade in liquor is res extra commercium , there cannot be any right of a citizen to trade in the commodity which is obnoxious and injurious to health, safety and welfare of the general public simply because the Government regulates the trade by levying fees, taxes or any other regulatory measure." Several distilleries had then challenged the excise rules and enactments as amended and enforced in Karnataka, Kerala and Andhra Pradesh. The court observed that Directive Principles being fundamental to the governance of the country, the state has the power to completely prohibit the manufacture, sale, possession, distribution and consumption of potable liquor as a beverage.
Last week, the Supreme Court again rejected another batch of petitions by liquor companies against the Andhra Pradesh Government, which had challenged its legislative competence to pass laws on prohibition and alleged violation of their right to trade.
Meanwhile, in Kerala, it appears unlikely that the 5,640 arrack shops that downed shutters on April 1 will reopen if the opposition Left Democratic Front (LDF) comes to power in the state. Antony’s move is being seen as irreversible, and lifting the ban may be seen as a regressive step, particularly by women. This is perhaps the reason why the LDF has not been very strident in its criticism of the partial prohibition imposed.
Complains Ganguly: "The signals are mixed. On the one hand, the Government allows international competitors to come in with foreign brands; on the other, prohibition becomes an issue. I think the liquor industry will have to live with this uncertainty." Hopefully, only till the elections are over.